The Bank of England has cut its benchmark interest rate by a quarter of a percentage point to 5 per cent.

The decision by the Bank's Monetary Policy Committee (MPC) had been widely expected following signs the global credit crisis was hitting the UK economy.

Economic conditions have worsened significantly in the last few months with falling house prices and a decrease in consumer confidence.

A recent International Monetary Fund (IMF) survey marked down sharply its UK economic growth forecast for 2008 to 1.6 per cent.

This is well below Chancellor Alistair Darling's forecast of around 2 per cent growth this year.

The Halifax Bank also announced on Tuesday that property prices slipped by 2.5 per cent in March, the largest monthly fall since September 1992.

UK business groups welcomed the announcement and called for further rate cuts to help boost growth.

David Kern, economic adviser to the British Chambers of Commerce, said: "It is vitally important to ensure that problems in the financial sector and in the housing market do not damage wealth-creating businesses.

"Undue delay in acting threatens to reduce the effectiveness of interest rate cuts that the MPC itself has anticipated already."

But new borrowers and homeowners looking to remortgage are unlikely to benefit from the rate cut, analysts said.

David Anderson, chief executive of Co-op Financial Services, told the BBC: "I don't think we can be sure that lenders will follow any cut in base rates.

"Lenders are funding mortgages from money markets and money markets are not always following reductions in the base rate. Therefore they may not be able to pass on any cut."

There are, however, some concerns about the impact the rate reduction will have on inflation.

Consumer Price Index inflation rose to 2.5 per cent in February, much higher than the Bank's 2 per cent target rate.

The previous change in the base rate was a reduction of 0.25 percentage points to 5.25 per cent in February.

The article Bank cuts interest rates to 5% originally appeared on 999 Today