The SMMT has welcomed the Bank of England's decision to cut interest rates by 0.25% to 5.75%. It is the first rate cut for nearly two years.

A spokesman called it “good news for everyone with borrowing costs" and pointed to the long term impact of falling interest rates.

“Looking towards Prime Minister Tony Blair's insinuation of a 2003 deadline for the UK's participation in the euro, we believe the rate cut will help to boost confidence in that respect,” he said.

The interest cuts could encourage manufacturers like Nissan, which is planning to source more components from mainland Europe, to look again at UK suppliers, he added.

“It could boost confidence in these sectors for long term planning.”

The rate cut was widely predicted by analysts who believed the threat of a slowdown in the UK economy had risen sufficiently to warrant a cut of at least 0.25%.

Ian Fletcher, British Chambers of Commerce chief economist, said: “With UK manufacturing still struggling on investment, in export markets and at home on the face of tough import competition, this rate cut will help protect against the knock-on effects of weaker global demand on our economy.”