Business chiefs have welcomed the Bank of England’s Christmas "mistletoe" of a one per cent cut in base rate.

On Thursday, the bank’s Monetary Policy Committee reduced the rate to two per cent, the lowest it has been since 1951.

The rate has fallen by three per cent in three months.

The Bank explained its decision by saying that inflationary pressuress had eased and the economic downturn had gathered pace.

The key question now is whether banks will pass on the full one per cent to borrowers and ease lending restrictions to businesses needing finance for expansion or even survival.

They are under enormous Government pressure to do so, but some banks argue that they have an obligation to savers as well as borrowers and it does not make business sense to pass on the full cut.

Roger House, chairman of the Federation of Small Businesses in Kent and Medway, said the historic rate cut sent out the right messager to banks to lend fairly to small business

"One in three of our members are still reporting trouble accessing finance so this move is very welcome," he said. "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."

Frazer Thompson, chairman of the Institute of Directors in Kent, and managing director of Chapel Down Wines at Tenterden, expected the rate to fall further, possibly to one per cent.

"Our interest rates are still high relative to European levels, he said. "I think they will fall to one or one and a half per cent. I don’t think a one per cent cut will mean anything unless bank ratdes and mortgage rates fall and people feel more confident."

He added: "I’m happy - you can’t be not happy about an interest rate cut. It will affect savers of course but from a business perspective, businesses generally borrow and it makes shares move attractive."