BBC Economics Correspondent Peter Morgan assesses the view from the High Street

It is the biggest cut in interest rates for four years and follows a 0.25% cut last month.

The Bank said it was taking the action over fears that the UK economy was heading for a sharp slowdown next year.

The cut is welcome news for home owners and the business community.

Mortgage lenders moved quicly to reduce their rates in line with the Bank of England's decision.

Adair Turner: "The right move"

The Halifax, Nationwide and Abbey National - the three biggest lenders - have all announced a cut in their mortgage rates of 0.5%.

The cut in lending rates will mean a monthly saving of £20 for a home owner with an average mortgage of £50,000.

Business welcomes news

Ed Crooks on why the Bank cut rates

Business leaders and trade unions had lobbied the Bank of England to cut rates to help stave off a recession and avert the threat of further large job losses.

The British Chambers of Commerce welcomed the Bank's "bold" decision.

"With further reductions in rates and sterling, business can get back to the job of competing and investing for growth," said deputy director-general Dr Ian Peters.

James Barty: "More cuts on the way"

Kate Barker, chief economic advisor to at the CBI, said: "Business will welcome this decision as the right response to our warnings on the increasing risk of the UK recession."

TUC general secretary John Monks said further cuts would be required to help industry.

"Similar cuts are still likely to be necessary in the months ahead if we are to head off the dangers of recession next year," he said.

Weaker growth forecast

The cut in rates will also come as a relief for UK Chancellor Gordon Brown.

He confirmed earlier this week that the UK was heading for much lower growth next year.

And many analysts believe that Mr Brown's optimistic forecasts of an upturn in UK growth by the year 2000 will only be achieved by a sharp fall in interest rates

The cut in rates comes amid signs that consumer confidence is falling and the service sector could follow the manufacturing industry into recession.

Sterling falls on the news

The news caught the City by surprise as most analysts had predicted a cut of 0.25%.

Peter Spencer of Birkbeck College said: "I am slightly surprised. Nobody really knows what is going in the labour market, and there could still be some inflationary pressures out there."

The pound weakened against the dollar and the deutschmark after the decision was announced, falling by two cents to $1.65 and one pfenning to DM2.75.

The FTSE 100 index of leading shares initially pared back earlier losses, but by 1300 GMT had dropped 118 points to 5505.