This is the third interest rate cut since December. However the impact for the consumer may not be that significant as other banks may not pass on the reduction to those that are applying for mortgages.
Retailers hope that an interest rate cut will stimulate spending on the high street, which they say has slowed considerably since the credit crunch kicked in late last year.
British Retail Cconsortium director general Stephen Robertson said: "This interest rate cut will give customers and retailers a much needed boost. With consumer confidence at its lowest level for 15 years, customers are reining in their spending and every prudent retailer is looking at cost-cutting more seriously than for some time."
Robertson added: "The Bank is understandably concerned about inflationary risks but these are mainly coming from rising world energy and commodity prices which won't be affected by keeping rates high. Retailers are absorbing many of the input cost increases and intense retail competition means that non-food prices are actually falling, while food price inflation is slowing."