Video: James Harding analyses the interest rate cut

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The Bank of England today cut interest rates for the first time in more than two years, reducing the borrowing cost by a quarter point from 5.75 per cent to 5.5 per cent, as it moved to stave off a severe downturn in the economy.

The Bank's pre-Christmas fillip for hard-pressed homeowners and struggling businesses came after a spate of bleak economic figures this week fuelled fears over prospects for next year.

The cut was immediately cheered by business leaders and the City after yesterday’s “double whammy” of grim news on the state of the housing market and the crucial services sector – the engine room of the economy – put pressure on the Bank of England to act.

The latest snapshot of the property market from Halifax, the nation’s biggest mortgage lender, showed that average house prices across the country fell by 1.1 per cent last month – the sharpest monthly drop for almost a year.

November’s sharp drop in home values followed a 0.6 per cent fall in September and a 0.7 per cent decline in October, marking the first time that house prices have fallen for three months in a row for more than a decade.

A combined 2.4 per cent decline in house prices during the three months to November was the most severe since 1992, which was the end of the last recession, when the property market was in the grip of “negative equity”.

This meant tumbling house prices left millions of homes worth less than their owner’s mortgage debt.

Falling service sector activity – its weakest in four and a half years – also raised hopes of a rate cut yesterday.

The CIPS/RBS purchasing managers’ index of services activity tumbled to a November reading of 51.9, down from October’s 53.1, as new business flowing into the vital sector and services companies’ confidence plunged.

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