The Bank of England made an emergency half-point rate cut today, joining five other central banks in reducing borrowing costs in another attempt to restore global financial stability.

The Bank's Monetary Policy Committee (MPC) has cut the UK interest rate by half a point to 4.5 per cent, a day ahead of its monthly decision on borrowing costs.

In a co-ordinated move with the European Central Bank, the US Federal Reserve, and central banks in Canada, Sweden and Switzerland, the Bank of England said it was making a half-point cut to offset the downside risks posed to the economy by the "recent intensification of the financial crisis".

The move came just hours after the Treasury and Bank of England announced a £50 billion bailout package for banks and building societies.

The Bank of England said today it had taken the decision on its own, stating: "The decision to cut interest rates was made entirely independently and in the usual way. The Government was informed just before noon."

The European Central Bank also cut rates by half a percentage point from 4.25 per cent to 3.75 per cent.

The Bank of Canada, the US Federal Reserve, Sveriges Riksbank and the Swiss National Bank made similar moves, while the Bank of Japan made no change to rates but said it supported the move.

Today's reduction is the biggest rate cut by the Bank of England and the first time it has made a rate announcement outside its schedule since the immediate aftermath of the terrorist attacks in the US on September 11, 2001.

The MPC, which held a special meeting this morning hours earlier than it was due to meet, said that while inflation was still likely to rise to more than 5 per cent, the sharp deterioration in the economy warranted a significant cut in rates.

Pressure is now mounting on lenders to cut their mortgage rates in response to today's move.

More than a fifth of borrowers on tracker deals will see their monthly payments fall, but those on deals linked to their lenders' standard variable rate (SVR) must wait to see if they pass on the full half-point cut. The cut will mean a saving of £47 a month on a £150,000 mortgage if the reduction is passed on in full by lenders.

HBOS, the UK's biggest lender, which is set to be taken over by Lloyds TSB, was the first lender to confirm that it would be passing on the full rate cut to mortgage borrrowers. Woolwich, the lending arm of Barclays, later followed suit.

In the bank rescue package outlined earlier today, the Government said it would seek assurance that the benefits of the easing credit conditions would be passed on to borrowers, who have seen the costs of their home loans spiral since the credit crunch began to bite.

Business groups welcomed the Bank's move but warned that it should be ready to make further cuts.

Miles Templeman, director general of the Institute of Directors, said: “We welcome the co-ordinated monetary and fiscal response to the current crisis. However, we strongly believe that a further interest rate reduction of 50 basis points will be required next month, if not before."

But the TUC said that today's move was not sharp enough. Brendan Barber. the TUC's general secretary, said: "While we welcome the international co-ordination that has brought simultaneous cuts in the UK, Europe and the US, a half-point cut is simply not enough. A deep cut in rates would not simply provide important help to businesses and mortgage payers, but also help end the financial crisis as it would make risky and insecure loans much more likely to be repaid."

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