The cut in the cost of borrowing across the eurozone of 11 European nations will lead to further pressure on the Bank of England to cut domestic interest rates when its Monetary Policy Committee meets on 9 December.

The UK cost of borrowing could be cut by up to 0.5%, to 6.25%, reducing mortgage payments for millions of homeowners. Although it would be bad news for savers, who would receive a lower return on their nest egg.

Eddie George, Governor of the Bank of England, is under pressure to cut rates

Adam Cole, economist at investment bank HSBC Securities, said: "The events will be taken note of by the Bank. I am sure we will see a cut of 0.25% this month and possibly a further 0.25% in January."

Lower rates may also lead to a fall in the value of the pound, making UK exports relatively cheaper abroad and providing some comfort to the embattled manufacturing sector.

There have been fears that a fall in European interest rates could actually damage manufacturers.

With European rates now at or around 3%, they are far lower than the UK's current 6.75% cost of borrowing.

Generally, rate cuts tends to see investors shifting money toward higher interest-rate economies, lifting demand for their currencies and the exchange rate itself.

Stronger euro

However the reduction is likely to improve the health of the eurozone economies, which in turn will strengthen the value of the euro, the European single currency which starts trading on January 1.

If the euro trades strongly against sterling, then UK exports into Europe will become relatively cheaper, and manufacturers sales should rise.

However the UK government has insisted it will not put pressure on the Bank of England to cut interest rates despite moves by the 11 EU countries.

At the start of the Anglo-French summit in St Malo, France, the Prime Minister's official spokesman said: "The interest rate decisions announced today are a matter for those banks that have announced them.

"The Bank of England will take its decision according to their remit and we would not put them under any pressure whatever - it is a matter for the Bank," he said.

Growing fears about economy

The eurozone countries made their cuts because of growing fears about the state of European economies and soaring unemployment levels.

Any cuts in UK rates would be welcomed in many quarters amid fears that Britain faces a similar threat. Two influential surveys out on the same day pointed to a rapid slowdown in the British economy.

The Confederation of British Industry reiterated its call for a 0.5% cut in UK rates after publishing a gloomy survey on high street shop sales.

The November poll of retailers showed their confidence about future spending by shoppers fell at its fastest rate since records started 15 years ago.

Little change

So far the rate cuts have had little effect on the pound.

It slipped back slightly on Friday against the US dollar, although it remained steady against the German Deutschmark.