The Bank of England (BoE) announced a 25 basis point cut to its key interest rate, reducing it to 4.75% on Thursday in response to UK inflation reaching its lowest level in three years.
The bank’s governor, Andrew Bailey, said in a statement, “We have been able to cut interest rates again” following the dip in annual inflation, now at 1.7%, which is below the BoE’s target of 2%.
Bailey added, “We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” though he noted that a gradual reduction in rates could continue if economic conditions align with projections.
The BoE’s move follows similar actions by central banks worldwide as they address inflationary pressures that escalated after the COVID-19 pandemic and geopolitical tensions, notably Russia’s invasion of Ukraine. Sweden’s central bank also cut rates by 50 basis points, its largest reduction in a decade, while Norway opted to keep rates steady.
This rate cut comes on the heels of a new budget introduced by the UK’s Labour government, which includes higher taxes and increased borrowing aimed at economic stability. The BoE had previously reduced rates in August, the first cut since early 2020, after a series of rate hikes between late 2021 and last year.
The US Federal Reserve is anticipated to announce a similar rate cut later today.
