Bank Of England Cuts Interest Rate As Inflation Slows

The Bank of England on Thursday said it was cutting its key interest further after UK inflation hit a three-year low and signalled more reductions.

As widely expected, the BoE trimmed borrowing costs by 25 basis points to 4.75 percent at a regular policy meeting, its second reduction since August. The US Federal Reserve is set to reduce rates later in the day.

“We have been able to cut interest rates again” after UK annual inflation fell below the BoE’s target, the central bank’s governor Andrew Bailey said in a statement.

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The Consumer Prices Index in Britain stands at 1.7 percent, the lowest level since 2021 and below the two-percent target.

“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” Bailey cautioned.

“But if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here.”

Major central banks started this year to cut interest rates that had been hiked in efforts to tame inflation, which had soared following the end of Covid lockdowns and Russia’s invasion of Ukraine.

Sweden’s central bank slashed borrowing costs by 0.5 basis points Thursday — its fourth this year and biggest reduction in a decade — while Norway made no change.

The Fed is later expected to trim by 25 basis points in a decision unlikely to have been influenced by Donald Trump’s return to power, according to analysts.

The BoE update follows a maiden budget last week from Britain’s new Labour government that featured tax rises and increased borrowing.

In August, the BoE reduced it key rate for the first time since early 2020, from a 16-year high of 5.25 percent as UK inflation returned to normal levels.

But it decided against a second reduction in a row in September. There was no October meeting.

The BoE hiked borrowing costs 14 times between late 2021 — when they stood at a record-low 0.1 percent — and the second half of last year.

AFP