Homeowners in Oxfordshire were taken by surprise by the Bank of England’s shock decision to cut interest rates by 1.5 per cent yesterday.

Interest rates were slashed to a 50-year low in a dramatic Bank of England bid to rescue the UK from deep recession.

The cut by the Bank's Monetary Policy Committee is the biggest single move since March 1981 and brings rates to levels not seen since 1955.

Experts predicted they could reach an all-time low of 1.5 per cent by mid-2009 as the Bank acts to stave off the worst impact of an economic slump.

Borrowers on standard variable rate mortgages will see average monthly payments on a £150,000 mortgage fall by around £138 — if the cut is passed on in full.

But lenders shaken by banking turmoil have been reluctant to pass on cuts in full as interbank lending rates — key in pricing fixed-rate deals — remained high.

Carole Scott, who bought a flat in Kidlington last year, said: "I am very pleased I took advice to take out a mortgage with ING, which guarantees its rate will never be more than 0.9 per cent above the base rate.

“I haven’t worked out how much I’ll be better off, but I’m hoping that it will mean a useful saving.”

She added: “It won’t kick in for a month or so though.”

She expects her rate to fall to 3.89 per cent from 5.39 per cent, saving her up to £100 a month.

The cut was welcomed by Barry Wheatley, chairman of the Oxfordshire Federation of Small Businesses, who said: “It’s what’s needed. I just hope that the banks pass on the cut fairly quickly.

“It’s going to be a real help to a range of businesses, and perhaps now people will be a bit more confident about spending – and that will follow through to the high street.”

Claire Moloney, of north Oxford estate agents Pink & Black, said: “All we’ve heard for the past year is bad news. Hopefully this will give people a bit of confidence.”

Kate Stinchcome, of Oxford-based Internet company Holiday Lettings, hoped lower mortgage costs could boost next year’s bookings.