THE region's struggling manufacturing industry was thrown a lifeline yesterday when interest rates were cut by 0.25 per cent.

The Bank of England's Monetary Policy Committee decision ended an unprecedented 13-month run of rate stability, taking the interest level to 3.75 per cent - the lowest since 1955.

The cut will enable British industry to be more competitive in the export market.

It may also breathe life into the housing market which, while still looking strong in the North-East, is starting to flag in the South.

Business leaders and union bosses were quick to applaud the move.

John Irwin, president of the North East Chamber of Commerce, said: "We are in a global economy and other countries have interest rates that are even lower than ours and are pinching our business.

"If our costs go down, it will help us compete better in the global theatre.

"Hopefully, this rate cut will begin to restore some business confidence that has all but evaporated in certain sectors, such as manufacturing, which has struggled amid the global economic downturn."

Davey Hall, regional secretary of engineering union Amicus, which lobbied strongly for the rate cut, said: "Hundreds of employers in the North-East, in particular the manufacturing sector, will benefit from this reduction and it will also help retain skilled, technical jobs in the industries."

Dr John Bridge, chairman of One NorthEast, said the region could reap rewards from the cut.

He said: "The latest business surveys of North-East exporters show they are resilient and this reduction in the interest rate should allow more scope for success benefiting the region as a whole."

The region's housing market is still riding high at present and is not likely to be affected greatly by the rate change.

Paul Reynolds, North-East branch chairman of the National Association of Estate Agents, said: "I do not think a quarter is enough to be any difference.

"In some cases, lenders will not necessarily alter their rates in suit. At this level, the mortgages are so cheap I cannot see any difference."

Some economists were concerned the rate cut could fuel the property bubble and increase the risks of a crash.

But, the Bank of England said the decision was made amid weaker prospects for global and domestic demand, and said it was necessary to cut rates in order to keep inflation on track.

It said: "Over the next two years, the prospects for demand are somewhat weaker than previously anticipated.

"In order to keep inflation on track, the committee judged that it was necessary to reduce interest rates."