LONDON - The Bank of England offered an early Christmas present for homeowners and retailers in the winter gloom yesterday as it cut interest rates amid signs that the global credit crisis was weighing heavily on the British economy.

In a rare move so close to the holiday season, the bank cut rates by one-quarter of a percentage point, to 5.5 percent, even as the European Central Bank held its own benchmark rate steady at 4 percent.

Economists had feared that mortgage lenders were unlikely to pass on the full quarter-percentage-point cut to homeowners as the credit crisis that led to the reduction in rates continues to keep interbank borrowing rates high. But two big banks, Halifax and Nationwide, announced they would pass on the full reduction to borrowers beginning Jan. 1.

The cut was also welcomed by retailers, although some warned that the rate cut, the first in two years after a series of increases, would not be enough to spark consumer spending. The rate increases were aimed at cooling the previously buoyant housing market and surging inflation.

"To soften the downturn that is clearly on the way for 2008 and avoid a full-blown recession, this must be the first of a series of cuts," British Retail Consortium director general Kevin Hawkins said. "The sooner the bank delivers the next one, the better."

Economists said they believed yesterday's decision by the Bank of England was one of the closest in the last few years as it weighed rising inflation against more evidence that Britain's decade-long housing boom was grinding to a halt and deteriorating consumer confidence.

The bank said inflation, which rose above the government's 2 percent target to an annualized rate of 2.1 percent in October, would remain above the target in the short term, but was likely to slow as higher credit costs hurt economic growth.