The Bank announced a range of measures to stimulate the UK economy, including a £100bn scheme to force banks to pass on the low interest rate to households and businesses.
It will also buy £60bn of UK government bonds and £10bn of corporate bonds.
Governor Mark Carney said there was scope to cut the interest rate further.
He said that a majority of the nine-member Monetary Policy Committee (MPC) backed another cut if subsequent data showed the economy was deteriorating.
Mr Carney also took a tough stance on banks and the introduction of its Term Funding Scheme. This will lend directly to banks at rates close to the new 0.25% base rate to encourage them to pass on the lower interest rates to businesses and households.
The Governor said that banks have “no excuse” not to pass on the lower borrowing costs to customers and will be charged a penalty if they fail to do so.
He said, “The MPC is determined that the stimulus the economy needs does not get diluted as it passes through the financial system.”
The Bank also announced the biggest cut to its growth forecasts since it started making them in 1993.
It has reduced its growth prediction for 2017 from the 2.3% it was expecting in May to 0.8%.
Mr Carney that the decision to leave the EU marked a “regime change” in which the UK would “redefine its openness to the movements of goods, services, people and capital”.
He said, “We took these steps because the economic outlook has changed markedly, with the largest revision to our GDP forecast since the MPC was formed almost two decades ago.
“By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown, and support the necessary adjustments in the UK economy.”
The decision to cut interest rates to 0.25% was approved unanimously by all nine members of the MPC and is the first change in interest rates since March 2009.