The Bank of England has cut interest rates by one percentage point, from 3% to 2% - the lowest level since 1951.
The move, which followed a dramatic cut in November, has been welcomed by many commentators who said the cut should help the slowing economy.
Prime Minister Gordon Brown has urged lenders to pass on the cut to homeowners and business.
So far, only a handful of lenders have said they will pass on the cut in full to standard variable rate mortgages.
There has been no news yet for savers, with banks and building societies saying their savings rates are "under review".
"If the banks pass the interest rate reduction on, and I hope and believe that they should do so, then it's of benefit to homeowners and businesses right across the country," Gordon Brown told BBC Radio 5 Live.
HSBC, Bristol & West, and Lloyds TSB, which also owns Cheltenham and Gloucester, have said their standard variable rate (SVR) mortgages would be cut by the full one percentage point cut.
But the UK's biggest mortgage lender HBOS has announced it will cut its SVR rates by a quarter of one percent.
Nationwide, the UK's biggest building society, will pass on 0.69 of a percentage point.
Woolwich said their SVR mortgages would be reduced by 1.15 percentage points. The Barclays-owned lender, however, did not pass on any of last month's 1.5 percentage point cut.
Royal Bank of Scotland and Lloyds TSB/Cheltenham & Gloucester will also pass on the rate cut to their small business customers, they said.
Before the interest rates decision, Halifax said its customers with existing tracker mortgages, that follow moves in the Bank of England's Base Rate, would benefit in full from any cuts.
This was despite a clause in the Halifax's paperwork which would have allowed it to put a limit on the cuts it passed on to mortgage customers.
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Brilliant, once again the sensible savers get kicked in the teeth
Jason Jones, Birmingham
Commenting on the reaction to the Bank's latest interest rates cut, BBC economics editor Hugh Pym said: "There wasn't quite the shock value of the dramatic one-and-a-half point reduction in November.
"But we shouldn't forget the scale of the Bank of England's action. The cost of borrowing has been more than halved since early October, as the Bank got to grips with the rapid decline in confidence and spending."
Earlier, there was further evidence of the rapidly slowing economy in the UK:
• House prices fell 2.6% between October and November - their sharpest monthly drop since the housing market crash of the 1990s - according to the Halifax.
• New car sales in November fell 36.8% on the year before - the steepest decline in nearly three decades according to the Society of Motor Manufacturers and Traders
• Homewares retail chain The Pier - which has 31 stores and 17 concessions across the UK - was placed in administration. It employs about 400 workers.
Central banks across Europe also cut rates in an effort to stem the economic decline.
The European Central Bank cut its key interest rate to 2.5% from 3.25%, the biggest reduction in its history.
Denmark's central bank also lowered its main interest rate by three-quarters of a percentage point, to 4.25%.
Earlier on Thursday, Sweden's central bank cut interest rates from 3.75% to 2% - a bigger-than-expected reduction.
'Bold but necessary'
This latest dramatic move by the Bank of England means that its Bank Rate is now at its lowest since November 1951- a year which saw the Festival of Britain and Winston Churchill become Prime Minister again.
ALSO IN 1951...
January-June, Korean War saw heaving fighting across the 38th parallel
May, King George VI opened the Festival of Britain
October, the Conservatives won the general election
The average house cost £2,100
A loaf of bread cost 6d (2.5 pence)
Hetal Mehta of the Ernst & Young Item Club said: "You could almost hear the sigh of relief up and down the country."
"Anything less would have been a missed opportunity. The Bank has given the economy the right medicine at the right time."
"Manufacturing and services surveys this week have confirmed that the recession is gathering momentum. At the same time, commodity prices have collapsed and inflation is set to fall dramatically, the dire prospect of deflation is becoming more likely."
Graeme Leach of the Institute of Directors welcomed the Bank's decision, calling it "bold but necessary".
The British Chambers of Commerce (BCC) said that because of worrying signs that UK activity was falling sharply, it was "critically important" the the Bank to persevere with "aggressive" rate cuts.
"There is a clear danger that unemployment will increase even more dramatically without urgent counter-measures," said David Kern, of the BCC.
And he strongly urged the Bank of England's monetary policy committee to cut interest rates by at least a further half a percentage point at its January meeting.
Stephen Robertson of the British Retail Consortium said: "This is exactly the type of decisive action we need during these uncertain times. With the threat of inflation fading, the Bank of England is right to concentrate on jump-starting the economy."