This is the largest rate cut in 15 years, and follows a cut of 0.5% in October.
The BoE has faced pressure from lobby groups representing many sectors, including mortgages. Many expected a cut of 1%, but a 1.5% is very welcome.
The last highest cut was 1% after Black Wednesday, to draw the economy out of a major slump.
For borrowers, the cut could be very good news if it kickstarts the economy and allows mortgage lenders to adjust their rates.