mortgage rates were slashed to a 46-year low last night after the Bank of England took dramatic action to shore up the economy.

Yesterday's 0.5 per cent reduction in interest rates to stave off recession was cheered by unions and industry leaders - and experts predicted more cuts could be on the horizon.

The reduction takes the cost of borrowing to four per cent, and is the seventh rate cut by the Bank this year.

The move will come as a much needed boost to manufacturers in the North-East facing an uphill task to export goods in the face of a strong pound.

The latest cut, which was followed by a similar 0.5 per cent cut by the European Central Bank, will see about £18 a month knocked off a £60,000 mortgage, bringing the total reduction since January to £108 a month.

The cut comes on the back of Tuesday's 0.5 per cent cut in rates by the US Federal Reserve.

The reductions come against a deteriorating global economic picture, exacerbated by the September 11 terrorist attacks on the US.

In its accompanying statement, the Bank of England said the half-point cut was made in the light of evidence which "now suggests that the global slowdown may be somewhat deeper and longer than previously thought".

Following the rates cut, a flurry of lenders were quick to pass on the savings, including Northern Rock.

It cut its standard variable rate from 6.3 per cent to 5.85 per cent.

Both the Darlington Building Society and Newcastle Building Society said they could be reviewing their rates in the coming days.

Britain's biggest mortgage lender, Halifax, reduced its rate to five per cent, the lowest it has offered since October 1955.

Nationwide also passed on the full cut to borrowers, slashing its standard variable rate to 5.24 per cent, and its base mortgage rate to 4.74 per cent - the cheapest mortgage it has offered since June 1955.

But Abbey National said, while it was reducing its Classic Mortgage, which tracks the base rate, by 0.5 per cent to 4.9 per cent, it would not be passing on the full cut to other borrowers.

North-East businesses leaders welcomed the rate cut. John Irwin, president of the North-East Chamber of Commerce, said: "This cut was essential and will go some way towards relieving pressure on North-East business, particularly manufacturers.

"It is important during this time of worrying economic uncertainty that the Bank of England, the Government and business work together to do everything possible to restore confidence."

The Institute of Directors said the rate cut had been unexpected, but was still welcome.

Ruth Lea, head of its policy unit, said: "We believe the economy is still slowing, despite the seemingly buoyant retail sales.

"There is little doubt that the international situation continues to deteriorate. The US will almost inevitably enter recession, Euroland's economic confidence is still faltering and Japan seems to be mired in recession."

Stephen Radley, chief economist at the Engineering Employers' Federation said the cut was a "clear signal of intent that the Bank will do everything in its power to limit the potential damage to the economy from the global downturn".

Digby Jones, director general of the CBI, said: "This was the decisive move that business wanted to give our economy a much-needed shot in the arm.