The Bank of England announced that it is cutting the official bank rate paid on commercial reserves yesterday.
Ahead of schedule, the monetary policy committee made a cut of 0.5 per cent, taking the rate in the UK from five to 4.5 per cent.
However, it also warned that inflation was likely to rise over the next couple of months, partially due to the increase in household energy prices.
The Bank of England is working in conjunction with many other foreign banks, including the US Federal Reserve and the European Central Bank.
In a joint statement they said: "Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets."
This is the first time the bank rate in the UK has been cut by more than 0.25 per cent since November 2001.
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