This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending.

The decision comes after official data showed the UK had entered a recession in December, after two successive quarters of economic contraction.

But some business groups argue rate cuts will not ease the economic crisis.

Following the rate cute Paul Broadhead of the Building Societies Association (BSA) told the BBC that savers were being "punished", arguing that the move could hinder the funds available to societies to lend as mortgages.

The Bank Rate has now been reduced from 5% in October last year.

The Federation of Small Businesses (FSB) was one of the business groups that had favoured keeping rates on hold, arguing that what was needed was improved access to capital.

It said that a survey of its members found that 63% wanted rates to remain at their current level, compared with only 24% who wanted a further cut.

"These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required," said FSB national chairman John Wright.

Among the mortgage lenders, Halifax said it would pass on the rate cut to customers with standard variable rate mortgages.