The Bank of England has cut its base lending rate by a quarter of one per cent signalling growing concern at the effect of the global downturn on the British economy.
The last 0.25 per cent reduction was in April in reaction to a slowing economy and the impact of the foot-and-mouth crisis.
Worries about the impact of a global economic slump could mean the cost of borrowing falls for the third time this year.
Figures released on Tuesday by the Confederation of British Industry show business confidence is continuing to fall sharply across Britain, adding to pressure for a cut.
The Bank of England has cut rates twice in 2001, bringing the cost of borrowing down for home-owners and businesses from 6 per cent at the start of the year to 5.5 per cent - the lowest level in more than 30 years.
Bank of England governor Sir Edward George says he is willing to cut rates further if there is evidence of a continuing slowdown.
Inflation remains below the British government's 2.5 per cent target and this leaves room for further cuts.
The manufacturing sector has been hit by job losses and this is expected to continue as profit margins remain under pressure. Across Britain expectations of job cuts in manufacturing are at their gloomiest since mid-1999.
PA