Last month the Bank of England revealed it had sought government approval for the measure.

Philip Shaw, chief economist with Investec, a specialist banking group, said the move "should in principle encourage the banks to lend to private sector agents such as households and businesses, stoking monetary growth and stimulating activity".

The Bank of England has slashed British borrowing costs since October last year, when they stood at 5 per cent.

The ECB has been less aggressive in cutting interest rates than the US Federal Reserve and the Bank of England, but still has room to cut rates further later in the year.