The cut took rates to 2.0 percent, their lowest level in more than half a century. UK interest rates have never gone below this level since the central bank was created in 1694.

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Analysts had widely expected the move following business indicators suggesting the economy could be heading for an even deeper recession than most people had predicted.

Amid a global credit crunch banks have clamped down on lending, hitting Britain's highly-indebted economy hard. House prices have fallen 18 percent from last year's peak, unemployment is soaring and consumer confidence has taken a dive.

Britain's economy shrank in the third quarter for the first time since the recession of the early 1990s and analysts expect the pain to intensify into next year.