The cost of borrowing is set to fall again after the Bank of England cut the base rate by half of one per cent to an historic low of one per cent.

Experts had expected the half point fall, although the Federation of Small Businesses had called for the rate to be held at 1.5 per cent.

The Bank of England’s Monetary Policy Committee decided to cut the rate because the global economy "is in the throes of a severe and synchronised downturn".

It said output in the advanced economies fell sharply in the fourth quarter of 2008, and growth in the emerging market economies appears to have slowed markedly.

"Business and household sentiment in many countries has deteriorated. The weakness of the global banking and financial system means that the supply of credit remains constrained."

This is the fifth cut in as many months and should offer the prospect of cheaper loans to homebuyers and businesses.

But it will mean another reduction for savers, with people like pensioners on fixed incomes facing even tougher times making ends meet.

The employers' organisation CBI said the cut should support business confidence and provide a stimulus to the ailing economy.

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