Despite a near unanimous expectation among observers that the Bank of England would act on Thursday, it still managed to surprise markets when it cut interest rates, expanded its program of bond buying and said that it would now buy corporate bonds as well as sovereign debt.

The bank's Monetary Policy Committee voted to reduce the bank rate by 25 basis points to 0.25% in the first change to the benchmark since March 2009. With inflation running at 0.5%, it has also pushed the U.K's interest rate into negative territory for the first time in history.

Rate setters also added £60 billion ($80 billion) to the central banks quantitative easing program, bringing the total size of asset purchases it expects to conduct to £435 billion. Further, the bank will now also look to buy corporate bonds as part of its QE program, to a tune of £10 billion

In addition, the bank announced a new term-fund-scheme that will allow banks to borrow from the central at rates close to the Bank Rate, which is meant to offset the effects of lower rates upon profitability at the nation's banks.

Bank stocks were volatile in the immediate aftermath, initially reversing Thursday morning's gains before rallying sharply in response to the news.

Dollar earner HSBC (HSBC)  led the way, rising by 2.6% to 519.0 pence. Domestic facing Barclays  (BCS) and Royal Bank of Scotland  (RBS) followed closely behind when they rose by 1.6% and 1.2% respectively.

So-called challenger banks - small lenders that have often sprung up since the credit crisis -  also rose sharply in response to the announcement.

The FTSE 100 was recently up 1.44 at 6,729.95, with the leader board featuring a wide range of companies from dollar earners all the way through to consumer facing companies. The FTSE 250 rose in tandem with its large-cap sibling.

The pound fell by around 1.6% against all major currencies. It reached lows of $1.3109, €1.1789, ¥132.75 and Sfr1.2774. The yields on 10-year government bonds tumbled 13 basis points to 0.67%.

Stocks also rose across Europe as the continent's investors responded to the stimulus. Those on the continent had been concerned about the outlook the U.K economy, given that it is a key trading partner of the many European nations. The Dax rose by 1% to 10,272.9 and the Cac 40 rose by 0.8% to 4,354.0.