The Bank of England's emergency 0.5% rate cut was welcomed as "essential and timely" by business leaders today.

The CBI said the move to 4.5% interest rate - alongside the Government's banking bail-out - "would be welcomed by business, and will help the economy at a critical time".

The British Chambers of Commerce, which this week warned that the UK was already in recession, said it was "thrilled" by the Monetary Policy Committee's (MPC) "bold and necessary step".

Director-general David Frost said: "The economy has been facing an emergency, and the MPC could not afford to wait."

The move is also likely to be a boost to retailers, who have been heavily hit by slumping consumer confidence amid rising inflation and falling house prices.

The director-general of the British Retail Consortium, Stephen Robertson, said: "A significant rate cut was necessary to restore confidence while stimulating the High Street and the rest of the economy.

"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."

Howard Archer, chief European and UK economist at Global Insight, said rates could be as low as 4% by the end of the year as the risks of a "prolonged, serious recession" mount.

"We expect the Bank to cut interest rates by a further 0.25% November and December, taking them down to 4% by the end of this year.

"Furthermore, we would not rule out deeper cuts if there is no easing in the financial sector problems."

Douglas McWilliams, chief executive of the Centre for Economics and Business Research added that the move "marks a key point" in the crisis.

"The UK in particular will need to cut rates persistently - perhaps to as low as 2% by the end of 2009.

"The economic crisis in the UK is only beginning and what has been done so far will not be enough to prevent a technical recession. It might be sufficient, as long as interest rates are cut further, to allow recovery to start in 2009."

But TUC general-secretary Brendan Barber said the half-point cut was "simply not enough".

Commenting on the half percentage point cut in interest rates, TUC General Secretary Brendan Barber said: "The inflationary threat is melting away, and the question now is how deep and long the slowdown will be.

"A deep cut in rates would not simply provide important help to businesses and mortgage payers, but also help end the financial crisis as it would make risky and insecure loans much more likely to be repaid.

"The Chancellor was right to remind the Bank that they have a remit to back government economic policy. A half per cent cut is not enough to support today's finance package."

Liberal Democrat Treasury spokesman Vince Cable said: "This interest rate cut is extremely welcome and will start to help the millions of people struggling to meet rising mortgage and loan repayments.

"The cut is all the more welcome because it is being taken on a coordinated basis, and will therefore have more impact on confidence.

"Governments and central banks have realised that in this extraordinary and dangerous situation interest rates have an important part to play in sustaining confidence beyond their inflation-fighting role.

"I suspect that we may be entering a period of substantial interest rate cuts."

Director-general of the British Chambers of Commerce David Frost said: "We are thrilled that the Bank of England has taken this bold and necessary step.

"The economy has been facing an emergency, and the MPC could not afford to wait. This cut will, for now, steady the markets and inject much needed confidence.

"Alleviating the dangers of a major downturn must be the overriding priority for the MPC right now. Over the next four months, interest rates must be cut to 4% as a minimum."

Housing charity Shelter challenged banks and mortgage lenders to pass on the rate cut to customers.

The charity's chief executive, Adam Sampson, said: "Shelter figures show more than 900,000 homeowners are constantly struggling or falling behind every month with their mortgage payments. The Bank of England has cut the rate, now lenders have both a financial and moral duty to cut their mortgage rates accordingly.

"The Government has unveiled a £50 billion rescue package to bail out the banks, but in turn the banks should be helping rescue almost one million home-owners who are facing crippling mortgage payments. People facing repossession or losing their homes isn't good for anyone - including the banks and lenders."

Federation of Small Businesses national chairman John Wright said: "This should be very helpful to Britain's small businesses but the welcome cut will only come into play if the banks follow through and reduce their charges to small businesses accordingly.

"We would urge the Government, now that it has a stake in the banks, to ensure all base rate cuts announced by the Bank of England are honoured by the clearers."