THE Bank of England today slashed interest rates by one and a half per cent to 3 per cent – the lowest rate since 1955.

The shock cut is the biggest single rate cut since 1981, and comes as the country faces up to the prospect of a deep recession.

Richard Lambert, director-general of the CBI, said: “Business and consumer confidence has been deteriorating sharply in recent months, and recession has replaced inflation as the major threat to the economy over the next year or two,” he said.

"This should help to ease conditions in the credit markets and allow banks to pass on the benefits to their customers.”

Ilona Krohn, principal economic advisor at Greater Manchester Chamber of Commerce, said: “This is an unusually large cut and it reflects the unusual economic conditions we are in. We have to keep in mind, however, that so far banks have not passed on the last interest rate cuts and the action might take longer than usual to take effect.”

David McKeith, north west senior partner at accountancy firm PricewaterhouseCoopers, said rates had needed to come down to three per cent or lower to prepare the economy for a recovery.

Today’s cut should help people on tracker mortgages pegged to the Bank’s base rate.

For those on standard variable rates the cut should knock more than £100 a month off the cost of a £150,000 mortgage.

But there are fears lenders will be reluctant to pass on reductions in full to other borrowers.

Chief Secretary to the Treasury Yvette Cooper said ministers expect banks to pass on the cuts as rapidly as possible after shoring up the finances of several major players with taxpayers' cash.

“The Government has stepped in to make the banking system safe, to support the banks. It is right now that the banks do their bit to support everybody else,” she said.

Shadow chancellor George Osborne said: “This is a shot in the arm for the economy, but it shows how sick the patient is.”