It is hoped the sharp cut will increase liquidity in the money markets, enabling businesses and consumers to borrow again.

After an initial hesitation, almost all of the leading high street banks have now passed on last month's 1.5% cut from 4.5% to 3% to borrowers, following pressure from the government.

Responding to the Bank of England’s cut in interest rates of 1%, Federation of Small Businesses national chairman John Wright said: "This historic rate cut sends out the right message to the banks to lend fairly to small businesses.

"One in three of our members are still reporting trouble accessing finance so this move is very welcome. The burden is now on the banks to pass this cut on to their customers. This cut will provide a welcome piece of mistletoe to give a kiss of life to the economy when it needs it most."

More to follow…