Shock and euphoria in Gloucestershire greeted the announcement that interest rates have been cut by the biggest amount since 1981.

The 1.5 per cent reduction takes the rate to a 50-year low in what has been described as a dramatic Bank of England bid to rescue the UK from deep recession, stimulate spending and kick-start the housing market.

But experts say the move will only be significant if banks pass on the cut to borrowers.

Gloucestershire-based mortgage lender C&G revealed it intended to pass on the full reduction to all of its standard variable rate customers immediately.

Mike Warburton, the Gloucestershire-based business expert for business advice firm Grant Thornton, said: "I'm surprised. I don't think anybody expected it.

"The banks will have to pass it on, but I don't think they should pass all of it on. Banks need to retain some of the cut for themselves because they need to improve their margins.

"There are a lot of savers, older people, living on fixed incomes. It is very important they are not forgotten in this."

If mortgage lenders do pass on the 1.5 per cent cut in full, it would slash the monthly cost of a typical £150,000 mortgage by £138 to £887, based on a new rate of six per cent.

People who are heavily mortgaged with a £250,000 loan would see their repayments drop by £230 a month, or £2,757 a year.

Vicki O'Connell, of Cheltenham-based Chelsea Building Society, the county's other major mortgage lender, said: "Whilst we welcome the decision to cut the Bank of England base rate this is only one of the factors that we consider when we determine our interest rates.

"We also have to consider money market rates which still remain significantly higher than the bank base rate and the competition in the savings and mortgage markets.

"There is also a need to maintain margins and more recently we have had to consider the fact that despite our own prudent business model, we will now have to contribute towards bailing out less well run competitors by contributing to the Financial Services Compensation Scheme."

Mike McNulty, of Cheltenham-based Lifestyle Investments and Mortgages Ltd, has already had inquiries from customers as a result.

"This is something to cheer and wave the flag about. I think it will go a long way towards restoring confidence," said Mr McNulty.

"A lot of people think this is about getting the housing market going but it is about getting people spending again."

Julian Farr, of Gloucester-based estate agents Farr and Farr, said: "It would be criminal if the banks do not pass this on. Whether they pass it all on has to be a business decision. Obviously they don't want to throw money at the public again.

"I think people will now be able to have a better Christmas than they thought they were going to."

Mark Owen, chairman of the Gloucester branch of the Federation of Small Business, said: "It is vital banks pass on the cut. Many business are still doing well and want to invest and the banks should help them."

Darren Cook, mortgage expert, said: "Congratulations must go out to Lloyd TSB and C&G for making a bold statement."

Yorkshire Building Society also welcomed the base rate cut, but did not commit to a cut in its own mortgage rates.

Richard Crawshaw, director

for estate agents Besley Hill Town & Country Homes, which has offices in Stroud and Dursley, said: "I really welcome the news since the size of drop in rate is no doubt to encourage in part better overall public confidence, greater retail spending and a stronger more recognised demand for the purchase of property again.

"We are registering more and more home hunters again which can only be taken as a good sign."

Chancellor Alistair Darling insisted it was "essential" that banks pass the cut on.

Shadow chancellor George Osborne said the extent of the cut underlined the serious economic trouble ahead for the UK.

"This is a shot in the arm for the economy, but it shows how sick the patient is," he said.