Interest rates cut to 1.5 per cent

The Bank of England has cut interest rates by half a percentage point to 1.5 per cent, the lowest rates have been since the bank was founded in 1694.

However concerns remain that the cut will not fuel a recovery of the UK economy.

Jeremy Hill, a director at property agent Christie + Co said: "The Bank of England is doing its bit to give some much needed stimulus to the economy with this historic move, however it is now imperative that the banks finally take some action in passing this latest cut on to companies to help them cope with what is expected to be a tough first half of the year."

Edward Menashy, chief economist at brokers Charles Stanley said it was unclear whether banks would pass on the reduction to borrowers.

"Past reductions in interest rates have not been fully passed on by the banks to their customers and the Bank of England's latest credit conditions survey found that lenders had reduced the availability of credit over the past three months.

"Clearly the banks need to make further bad debt provisions as a result of the severity of the recession, whilst the Government is also considering injecting more capital into the banks."

Finance experts are predicting that inflation will fall to zero in the course of 2009, although some fear the spectre of deflation.

"The trough of that decline is expected around the third quarter of 2009. Thereafter both inflation and interest rates can be expected to rise," said Menashy.