The Bank of England's monetary policy committee (MPC) has cut the official base rate by 0.5 per cent.
It means that the rate is now at 4.5 per cent, having been set at five per cent since April.
The move has come as a surprise to many economists who expected a cut of no more than 0.25 per cent and the announcement comes a day ahead of schedule.
A change in the base rate has a significant impact on those seeking unsecured and secured loans, as it affects the interest set by banks.
And those with a secured loan that tracks the base rate will now find that their interest payments automatically fall by 0.5 per cent.
Six other central banks have also cut rates as part of a coordinated international plan, including the US Federal Reserve and the European Central Bank.
The MPC has not changed the Bank's rate by more than 0.25 since November 2001, when it was dropped from 4.5 per cent to four per cent.
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