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Interest rates are now at their lowest level since 1951 and equal to the all-time lowest level ever.
Banks and building societies have yet to announce how the cut in interest rates will affect their savings rates.
Stephen Robertson of the British Retail Consortium said he thought move would be good for British business.
He told the BBC: "This is exactly the type of decisive action we need during these uncertain times.
"With the threat of inflation fading, the Bank of England is right to concentrate on jump-starting the economy."
In related news, the European central bank has also cuts interests rates from 3.25 per cent to 2.5 per cent, the largest reduction in the bank's history.
