The Bank of England's Monetary Policy Committee reduced its key interest rate to 5.25% from 5.5% Thursday, but signaled that inflationary risks will prevent it from easing policy rapidly in the months ahead.
The decision to cut the Bank rate was widely expected: all 13 economists surveyed by Dow Jones Newswires last week had tipped the BOE to reduce rates by 25 basis points from 5.5%, and markets were fully pricing in a reduction in rates.
The U.K. central bank noted that with credit conditions tightening, business surveys have indicated that the economy is slowing.
But in a statement accompanying its decision, the U.K. central bank said upside risks to inflation remain, and that rising energy and food prices may push the inflation rate further above its target in the coming months.
"The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target," the MPC said.
The next clues on the rate outlook will come from fresh forecasts for inflation and growth in the MPC's quarterly Inflation Report, due Feb. 13. Minutes of this week's meeting will also be published at 0930 GMT on Feb. 20.
The MPC cut rates in December for the first time since August 2005, following a policy tightening cycle that only ended last July, that saw rates raised to a six-year high of 5.75% from only 4.5% a year before. In January, it kept rates on hold.
The decision to cut the Bank rate was widely expected: all 13 economists surveyed by Dow Jones Newswires last week had tipped the BOE to reduce rates by 25 basis points from 5.5%, and markets were fully pricing in a reduction in rates.
The U.K. central bank noted that with credit conditions tightening, business surveys have indicated that the economy is slowing.
But in a statement accompanying its decision, the U.K. central bank said upside risks to inflation remain, and that rising energy and food prices may push the inflation rate further above its target in the coming months.
"The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target," the MPC said.
The next clues on the rate outlook will come from fresh forecasts for inflation and growth in the MPC's quarterly Inflation Report, due Feb. 13. Minutes of this week's meeting will also be published at 0930 GMT on Feb. 20.
The MPC cut rates in December for the first time since August 2005, following a policy tightening cycle that only ended last July, that saw rates raised to a six-year high of 5.75% from only 4.5% a year before. In January, it kept rates on hold.
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