The move has been welcomed by many commentators who said the cut would help the slowing economy.
The 1 per cent cut is to help further stimulate the economy, in the face of worsening economic data.
A rapid fall from interest rates of 4.5 per cent a month ago, the 2 per cent rate is the lowest seen in the UK since 1951.
The bank is keen for a sharp stimulus, as evidence emerges that the recession will be worse than initially predicted.
Governor Mervyn King said: ‘We will take whatever action we feel is necessary on interest rates, to steer the economy back into calmer waters.’
Sue Robinson, director of the Retail Motor Industry Federation (RMIF), said: ‘The Bank of England’s decision to further reduce the interest rate is positive news for consumers and business, but it is vital that the saving is passed on to restore confidence in the marketplace.
‘Consumers and business will feel more confident in the economy once they feel the effect of a lower cost of borrowing.’