The largest mortgage lenders are only passing on the cut to existing customers who pay variable rates. New mortgages continue to be offered at ever increasing rates as the lenders try to drive away custom (see earlier story in knowledgebase)

Nevertheless, business groups welcomed the decision and called for further cuts in the near future to shore up the prospect of growth in the economy.

A spokesperson for 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,"

Obtaining funding from the money markets has become more costly for banks as a result of the uncertainty in financial markets and a shortage of funds caused by the global credit crisis. Michael Coogan, director general of the Council of Mortgage Lenders said, "In these dysfunctional market conditions, the base rate is not in itself a good guide to the cost or availability of funds to lenders."