The Bank of England has cut its main interest rate to 0.25% from 0.75%.
The central bank said the decision came following the spread of Covid-19, which has seen stock markets and shares plunge around the world.
At a press conference following the rate cut, Bank Governor Mark Carney said the "big package" of measures announced will "prevent a temporary disruption from causing longer lasting economic harm".
Incoming Governor Andrew Bailey, who was also present at the special meeting to vote on the rate move, said it will mean households and businesses will be able to rely on the banks to lend.
Mr Carney said the Bank had room to cut rates further if needed, with the potential to reduce them to slightly above zero.
Mr Bailey - who takes over as Governor next week - confirmed the Bank will meet again, as scheduled, on March 26 and look at whether further action is needed then.
In an earlier statement the Bank said its role is to help UK businesses and households manage through an economic shock from coronavirus “that could prove sharp and large, but should be temporary”.
It said the effect of the new coronavirus on the British economy could be significant, with activity likely to “weaken materially” in the coming months.
So far, six people have died in the UK and 382 have tested positive for the respiratory disease.
The Bank said in a statement that the rate cut was part of a " comprehensive and timely package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19”.
"These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm,” it said.
ITV News's Business and Economics Editor Joel Hills said the Bank of England believes the UK banking system can "withstand extreme economic shocks" and that lending can continue.
The Bank said that following the spread of Covid-19, “risky asset and commodity prices have fallen sharply and government bond yields reached all-time lows consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth.
“Indicators of financial market uncertainty have reached extreme levels. ”
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It went on: “Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.
“Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy. ”
The rate cut decision was taken at a special meeting of the Monetary Policy Committee which ended on Tuesday and the vote to cut the bank rate by 50 basis points to 0.25% was unanimous.
The MPC also voted unanimously for the bank to introduce a new term funding scheme with additional incentives for small and medium-sized enterprises (TFSME), financed by the issue of central bank reserves.
The bank said the rate cut “will help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance”