The Bank of England has cut the cost of borrowing to 3.75 per cent from 4 per cent, the lowest since 1955.
The Bank of England has not trimmed rates since November 2001. Two of the bank's nine rate-setters voted for a reduction last month.
The cut is good news for manufacturers. A report from the CBI has claimed that 42,000 jobs in manufacturing are at risk as the number of factories working below capacity has hit a 20-year high.
Earlier this week the British Engineering Employers' Federation called on the Bank of England to follow the US Federal Reserve's lead from last year and "help the UK economy through its current soft spot".
Although the Federal Reserve has cut rates in the United States to just 1.25 per cent, the Bank of England's Monetary Policy Committee has left British rates on hold at 4 per cent since November 2001.
The Bank of England's Monetary Policy Committee voted 7-2 to keep interest rates steady last month, according to minutes of its meeting.