Alan Bridle, Bank of Ireland economist, said at the start of the week a 0.25 per cent rate cut looked likely but such had been the rapidly changing pace of events that a bolder measure had been deemed appropriate.

“Both the Government package for the UK banking sector and the emergency 0.5 per cent rate cut from the Bank of England demonstrate how exceptional times require exceptional responses,’’ said Mr Bridle.

“In effect, the Monetary Policy Committee has temporarily suspended its inflation targeting with the risks of a more severe economic slowdown taking precedence.

However, with the falling price of oil and other commodities, the inflation indices should peak soon and subside quite quickly as we move into 2009.

“Northern Ireland firms and homeowners with borrowings linked to base rate, including tracker mortgages, should begin to see the benefit of the cut in the coming days and weeks but it remains to be seen if we see any short-term relief in wholesale market rates where the majority of larger corporate and business loans are priced.

“There is now the likelihood of another cut next month and a base rate of four per cent before Christmas.

“Of course, we should not forget Northern Ireland’s army of small savers who outnumber borrowers by a ratio of five or six to one and for whom returns may now begin to ease.

Also commenting on the rates change, Ulster Bank economist Richard Ramsey said in terms of the future, inflation was still to peak. However, he said with economic activity decelerating sharply, inflation was set to plummet and would become less of a concern in 2009.

“Remember the Monetary Policy Committee targets inflation on a two-year time horizon and the prospect of a UK recession, by easing inflationary pressures, should see the Bank of England lower rates to four per cent and below in the months ahead.

“It is early days, but some observers are already forecasting UK interest rates to fall below 3.5 per cent which would represent a new 50-year low.

“While the old cliché is that a week is a long time in politics, it is proving to be a very long time in the world of financial markets. In our view, the decision marks the beginning of an interest rate cutting cycle for the Fed, the European Central Bank and the Bank of England.’’

Simon Rubinsohn, RICS chief economist, said the dramatic response from the authorities was an appropriate response to the chaos in financial markets over the past few weeks and the global economy’s slide into recession.

“This should help to start the process of rebuilding confidence but we suspect that more action will be necessary over the coming months.

“Specifically in the UK we see base rates dropping to 3.5 per cent by the middle of next year.’’