Boost for mortgage holders with first interest rate cut in two years

The quarter-point drop will mean estimated savings of 250 a year for a typical borrower with a 100,000 variable rate mortgage.

But the cut, which comes amid slowing UK economic growth and reduced consumer spending, is bad news for savers who will now see a lower return on their money.

Mortgage lenders, including Halifax and Dunfermline Building Society, announced rate cuts following the Bank's decision, with others expected to follow suit.

The Council of Mortgage Lenders' deputy director general, Peter Williams, said: "In recent months consumer confidence has been relatively weak, and data has shown households are becoming more cautious about borrowing. The rate cut will help stem the decline in consumer confidence and support the view interest rates have peaked."

Analysts suggested the Bank could reduce rates at least once more this year, but said numerous cuts would be unlikely for fear of rising inflation.

Louise Cuming, the head of mortgages at price comparison website moneysupermarket.com, said: "If this downward trend continues, consumers will find less value in fixed-rate mortgages and turn to variable rates. Lower rates will boost affordability of borrowing, increase the attractiveness of house ownership, and have the desired effect of increasing house purchases."

The news has also been welcomed by business leaders who said the Bank had made "the right decision" amid mounting evidence of a UK slowdown.

Digby Jones, head of the Confederation of British Industry, said: "This cut will be a catalyst for growth and will provide an essential boost to consumer and business confidence."

However, analysts said the impact would be less noticeable in Scotland which has not suffered the same recent spending slowdown as England.