Bank of England has unexpectedly cut interest rates by half a point to 4.5 per cent.

The surprise decision came a day before any change was anticipated in the face of an “intensification of the financial crisis”.

In a coordinated move central banks including the European Central Bank and the US Federal Reserve also shaved 0.5 per cent off interest rates.

The moves follow the announcement this morning by the UK government of a£50 billion rescue plan for British banks.

The Bank of England's Monetary Policy Committee held an emergency meeting this morning, in which it agreed the interest cut ahead of schedule.

Immediately after the meeting, the central banks — including the Bank of England, the European Central Bank, the US Federal Reserve, Bank of Canada, Sweden's Riksbank, the Swiss National Bank and the Bank of Japan — said that “some easing of global monetary conditions” was needed in the face of the recent turmoil that has gripped the global economy.

In a statement, the group of central banks said: “Conditions in international credit and money markets have deteriorated very markedly. Many markets are closed. In the United Kingdom, the supply of credit to households and businesses is clearly tightening further as banks seek to adjust their balance sheets.”

The decision is likely to be welcomed by retailers, although the lower rate is unlikely to boost consumer confidence in the immediate term.

Earlier today, British Retail Consortium director-general Stephen Robertson called for a rate cut following news that food price inflation has fallen for the first time in six months.

Robertson welcomed the rate cut.

“This bold action by the Bank of England is the right decision and will be welcomed by hard-pressed customers and retailers," he said.

“The banking crisis is undermining consumer confidence and a significant rate cut was necessary to restore confidence while stimulating the High Street and the rest of the economy.

“The slowdown will act as a downward pressure on prices. Commodity prices are falling rapidly which will ease operating costs and so inflation should fall sharply.

“It takes months for the benefits of a rate cut to filter through so cutting rates today will avoid the need for a bigger cut later on. This should only be the start of a series of reviving rate reductions.”

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