Global rate cuts follow £50bn bank rescue plan

Gordon Brown announced a shock 0.5 per cent cut in interest rates at Prime Minister's Questions today. The Bank of England reduced its rate from 5 per cent to 4.5 per cent as other banks including the US Federal Reserve and the European Central Bank also trimmed their rates by the same amount.

The move came hours after Chancellor Alistair Darling (pictured) confirmed the Government will use £50bn of taxpayers' money to take major stakes in struggling high street banks.

Bank shares responded well to the news - as the markets opened, HBOS rose by 27 per cent and the Royal Bank of Scotland was up by 12 per cent after sharp falls yesterday. Overall however the FTSE index of leading shares fell by almost four per cent in the first half hour of trading, but by noon it had recouped its losses.

Members of the Treasury worked into the night to put together the ambitious rescue plan, which will see the bank sector partially nationalised. A further £200bn will be made available in a special liquidity scheme for short-term buying to kickstart the banking system.

A statement by the Treasury, given before the markets opened at 8am, said the package consisted of "specific and comprehensive measures [designed] to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers".

Eight banks and building societies – the Abbey, Barclays, HBOS, HSBC, LLoyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered - have confirmed they will take part in the scheme which will see extra capital made available to them.