The cut follows calls for action to help homeowners and businesses.
If the cut is passed on in full, a homeowner with a mortgage of £100,000 will save around £56 per month.
The news was praised by the mortgage industry. “As the MPC steps out of the telephone kiosk in its superhero costume for a consecutive month, it has put its superpowers to the test in a determined attempt to rescue the UK economy from the dark forces of the recession and slash the base rate by 1.5 per cent,” said Jonathan Cornell, managing director at Hamptons International Mortgages.
Because the rate is now so low, many lenders are unlikely to pass on the full cut to their borrowers, even those with tracker mortgages where a clause in their contracts may mean that when the base rate falls below a certain level, the lender will not pass that cut on.
“Although the primary aim of the MPC has been to control inflation and with this widely believed to have peaked this has taken a back seat in November as the current economic situation has been viewed as paramount,” said Brian Murphy, head of lending at broker Mortgage Advice Bureau. “However, due to ongoing confidence issues within the money markets, some banks and building societies are unlikely to pass on the cut in full and therefore not all borrowers will benefit from this decrease.”
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