BUSINESS leaders today praised the Bank of England after it cut interest rates by 1.5%.

BUSINESS leaders today praised the Bank of England after it cut interest rates by 1.5%.

The unexpectedly large cut brings official interest rates to 3% and the move from the Bank's Monetary Policy Committee comes as the UK sinks further into economic gloom.

It brings rates to their lowest level since 1955 and is the biggest rate cut in the UK since a 2% cut in March 1981 - when the country was gripped by recession in the early years of Margaret Thatcher's government.

Within minutes of the interest rate cut at noon, Lloyds TSB announced it was passing on the full 1.5% cut to its variable rate mortgage customers.

The group, which also lends under the Cheltenham & Gloucester brand, is reducing its standard variable mortgage rate from 6.5% to 5% from November 1.

But other lenders were slower to respond, with all of the major groups, including the UK's biggest lender Halifax, saying their rates were under review.

If the cut is passed in full, it means borrowers on standard variable rates will see the average monthly payments on a £150,000 mortgage fall by around £138.

CBI director-general Richard Lambert called the interest rate cut a "bold and welcome" move.

He said: "This cut should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers."

Graeme Leach, chief economist at the Institute of Directors, said: "We think interest rates could touch record lows of 2% or less by this time next year. The sooner we get interest rates down, the less is the risk of a long and deep recession."

Liberal Democrat Treasury spokesman Vince Cable welcomed the move but said there was still scope for further cuts in interest rates.

Chief Secretary to the Treasury Yvette Cooper said the Government expects retail banks to pass on the cuts to borrowers as rapidly as possible.

Ms Cooper pointed out the banks that accepted financial support from the Government were required to sign up to certain conditions, including continuing to lend at competitive rates.

However, many lenders are expected not to pass on the full reduction to their SVR customers, particularly given the size of the cut.

Only 57 of the 96 lenders that have an SVR have passed on October's reduction, with many failing to pass on all of the 0.5%.

Most of the 4.7million households that have a tracker or discount mortgage should automatically benefit from the reduction.

But new borrowers taking out one of the deals are unlikely to see their rates fall in line with today's cut.