LONDON (AP) 鈥� The Bank of England cut its main interest rate by a quarter of a percentage point on Thursday after inflation across the U.K. fell below its target rate of 2%.
The bank said its rate-setting panel lowered the benchmark rate to 4.75% 鈥� its second cut in three months 鈥� though its governor Andrew Bailey cautioned that interest rates would not be falling too fast over coming months.
鈥淲e need to make sure inflation stays close to target, so we can鈥檛 cut interest rates too quickly or by too much,鈥� he said. 鈥淏ut if the economy evolves as we expect it鈥檚 likely that interest rates will continue to fall gradually from here.鈥�
In the year to September, , its lowest level since April 2021 and below the central bank鈥檚 target rate of 2%.
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鈥檚 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.
Economists have warned that worries about the future path of prices following from the new Labour government and the economic impact of may limit the number of cuts next year.
The decision comes a week 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.
The rate decision also comes a day after Trump was declared the winner of the U.S. presidential election. He has indicated that he will cut taxes and introduce tariffs on certain imported goods when he returns to the White House in January. Both policies have the potential to be inflationary both in the U.S. and globally, thereby prompting Bank of England policymakers to keep interest rates higher than initially planned.
Pan Pylas, The Associated Press
