LONDON (AP) — The Bank of England has cut its main interest rate by a quarter of a percentage point after inflation across the U.K. fell below its target rate of 2%.
In an announcement Thursday, the bank said its rate-setting panel lowered the benchmark rate to 4.75%. That is its second cut in three months and follows a sharp decline in inflation over the past year.
Central banks worldwide dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to shoot up, first as a result of supply chain issues built up and then because of Russia’s full-scale invasion of Ukraine which pushed up energy costs.
As inflation rates have recently fallen from multi-decade highs, the central banks have started cutting interest rates. The U.S. Federal Reserve is also expected to cut interest rates later Thursday.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
LONDON (AP) — The Bank of England is set to cut interest rates later Thursday for the second time in three months, as inflation has fallen to its lowest level in more than three years.
However, economists warn that worries about the future path of prices following last week’s tax-raising budget from the new Labour government and the economic impact of U.S. President-elect Donald Trump may limit the number of cuts next year.
For now though, the Bank of England is widely expected to reduce its main interest rate by a quarter of a percentage point to 4.75%. In August, the bank’s nine-member Monetary Policy Committee cut borrowing costs for the first time since the early days of the coronavirus pandemic in the spring of 2020.
Central banks worldwide dramatically increased borrowing costs from near zero during the pandemic when prices started to shoot up, first as a result of supply chain issues built up and then because of Russia’s full-scale invasion of Ukraine, which pushed up energy costs. As inflation rates have recently fallen from multi-decade highs, these central banks started cutting interest rates.
Analysts said that policymakers are likely confident that inflationary pressures in the U.K. economy have eased enough for them to further ease the financial burden on businesses and mortgage holders. In the year to September, inflation stood at 1.7%, its lowest level since April 2021 and below the central bank’s target rate of 2%.
The decision comes a month after Treasury chief Rachel Reeves announced around 70 billion pounds ($90 billion) of extra spending, funded through increased business taxes and borrowing. Economists think that the splurge, coupled with the prospect of businesses cushioning the tax hikes by raising prices, could lead to higher inflation next year.