Key Points
- The Bank of England cut its key interest rate by a quarter-point to 3.75%. This is the first rate cut in four months.
- The decision was driven by recent data showing that UK inflation is starting to cool.
- The move is also an attempt to boost a stagnant economy and a weakening job market.
- The vote was very close (5-4), indicating the bank remains concerned about inflation remaining above its target.
The Bank of England cut its key interest rate on Thursday for the first time in four months, a sign of hope for British consumers and businesses that have been struggling with stubbornly high prices. The move comes as new data shows that inflation is finally starting to ease.
In a 5-4 vote, policymakers decided to lower the base rate by a quarter of a percentage point to 3.75%. This decision followed a report that inflation had slowed to 3.2% in November, which was better than the bank’s own forecast.
With the economy stagnant and the job market weakening, the better-than-expected inflation numbers gave the bank the room it needed to act. The unemployment rate recently rose to 5.1%, its highest level in years, adding to pressure on the central bank to take action to spur economic growth.
However, the close vote shows that the fight against inflation isn’t over. Four members of the bank’s committee voted to keep rates on hold, citing that inflation remains well above the bank’s 2% target.
British inflation also remains higher than in the U.S. and Europe, a lingering concern for policymakers.
Lowering interest rates is a delicate balancing act. It can help the economy by making borrowing more expensive, which encourages spending and investment. But it also carries the risk of reigniting inflation. For now, the Bank of England has decided that the risk of a stagnant economy is the more pressing concern.
