The Bank of England has slashed interest rates to 3% in a surprise move to revive the UK economy.

Many analysts had been predicting a 0.5% cut with business groups calling for a 1% fall in rates.

This is the first time the Bank has cut interest rates by more than 0.5% since it became independent in 1997, and follows a string of surveys suggesting the economic downturn is likely to lead to a severe recession.

The news will be a welcome boost to small business owners and consumer spending, although there are fears that banks will not pass the full rate cut on to borrowers.