The Bank of England (BoE) has slashed interest rates by 25 basis points to 0.25% and is injecting an extra £60bn into the economy.
The bank's Monetary Policy Committee decided to reduce rates for the first time since March 2009 to prop up the flagging economy following the EU referendum vote.
It is also increasing quantitative easing by £60bn from its current level of £375bn.
The FTSE 100 Index responded by rising 67.6 points to 6700.45, but the pound tumbled 1.15% to US$1.317 shortly after the announcement.
Ipek Ozkardeskaya at London Capital Group said: "The BoE will deliver its first economic assessment regarding the UK’s post-Brexit era and is highly likely to lower its growth forecast for the third time in 2016."
The price of a barrel of Brent crude dipped 1% to US$42.65 and a barrel of West Texas Intermediate fell 0.67% to US$40.56.
Small-cap indices were on the up, with the FTSE AIM 100 rising 6.67 points to 3631.34 and the FTSE AIM All-Share advancing 0.82 points to 758.15.
Zambeef Products Plc (LON:ZAM) was the top riser with a 31.9% gain to 10.56p as one of Zambia’s largest agri-businesses netted up to US$65mln of investment from a development finance group owned by the UK government.
Hague and London Oil Plc (LON:HNL) ticked up 12.9% to 4.375p after the company did a deal with ENGIE Global Energy Management, whereby ENGIE will offer innovatively structured gas off-take arrangements.
Support services group Serco PLC (LON:SRP) was in the money by 12.38% to 133.4p after first-half underlying trading profit increased by a better-than-expected 9%.
But Zamano Plc (LON:ZMNO) backtracked 16.7% to 10p on news that overall group contribution margins were lower as a result of increased advertising spend and the changing profile of the UK business.
Newspaper publisher Johnston Press plc (LON:JPR) retreated 17.1% to 11.4p as it said its first-half performance had fallen short of expectations due to tough advertising markets.
Back in the top flight, insurers Aviva PLC (LON:AV.) and RSA Insurance Group PLC (LON:RSA) were the top blue-chip performers after both released interim results.
But Randgold Resources PLC (LON:RRS) was among the top fallers, losing 12.7% to 2328p after the miner reported a hit to production and costs in the quarter to June, although it said the improvement expected in the second half of the year should boost its 2016 results to within its market guidance.
Market preview
London’s FTSE 100 is set to move slightly higher on Thursday ahead of the Bank of England policy meeting.
It could be the first for seven years that sees an adjustment to interest rates, now that the economists have had just over a month to ruminate on the Brexit and the fallout from the referendum vote.
The BoE was among the first responders after the referendum results came in, quick to pledge support and liquidity. Now, the market is expecting more support.
“While it is widely expected today that the Bank of England will lower its growth forecasts it is also expected to make a move on interest rates for the first time since 2009, and cut rates by at least 25 basis points to a new record low of 0.25%,” said Michael Hewson, analyst at CMC Markets.
“It could also go on to announce the intention to implement further asset buying programs, however there is a school of thought that suggests the Bank should hold firm and wait and see.”
Overseas, meanwhile, markets are also waiting – for tomorrow’s non-farm payroll employment statistics.
Better than expected private company employment data for July, released yesterday, point to a better than forecast jobs market, nevertheless, the monthly NFP figures remain highly anticipated.
Wall Street managed a positive close on Wednesday. The Dow Jones added around 40 points, 0.23%, to end the session at 18,355 while the S&P 500 and Nasdaq gained 0.3% and 0.4% respectively.
Elsewhere, a rally in oil prices supported equities in Asia.
Japan’s Nikkei rose 0.7% to 16,193 while Hong Kong’s Hang Seng climbed 0.67% to 21,183.
The Shanghai Composite, meanwhile, edged lower to 2,972.
Oil prices strengthened and moved away from the lows of recent days. Brent crude gained 3.4% to US$43.29 while WTI crude added 4% to change hands at US$41.13 per barrel.
The price of gold was down slightly at US$1,351 per ounce.
Looking back to London, IG Markets sees the FTSE 100 just over 20 points higher.