The Bank of England has cut interest rates to 5% in a bid to bolster an increasingly fragile economy.

The move is designed in part to boost the housing market, which saw the biggest fall in prices since September 1992 in March.

Most mortgage lenders have said they will pass on the rate to customers on standard variable rates but many have put up their rates for new customers dramatically over the past few weeks due to high inter-bank lending rates and fears over their ability to finance new lending.

Business groups welcomed the cut, which had been widely forecast by analysts. "It is vitally important to ensure that problems in the financial sector and in the housing market do not damage wealth-creating businesses," said David Kern, economic adviser to the British Chambers of Commerce.

In a statement, the Bank said it expected inflation to fall from its current level even if food and fuel prices remain high but added that it was likely to remain above the government's target of 2%.