Bank of England cuts rate as keeps watch over tariffs
LONDON (AFP)The Bank of England on Thursday cut its key interest rate by a quarter point to four percent, the lowest level in 2.5 years, as it bids to boost a UK economy threatened by US tariffs.Alongside the expected decision, the BoE forecast British economic growth to hit 1.25 percent this year, slightly better than the central bank's previous estimate of one percent."The direct impact of US tariffs is milder than feared but more general tariff-related uncertainty still weighs on sentiment," the BoE said in a statement after studying data gathered by UK businesses.London and Washington reached an agreement in May to cut levies of more than 10 percent imposed by US President Donald Trump on certain UK-made items imported by the United States, notably vehicles.The quarter-point cut Thursday was the BoE's fifth such reduction since starting a trimming cycle in August 2024."Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully," its governor Andrew Bailey said following Thursday's decision.The BoE voted 5-4 for the reduction but not before an unprecedented second vote owing to a three-way split among its nine policymakers that prevented a necessary majority result.Initially four members voted for the reduction and four for no change. One member called for a larger cut of 0.50 percent, before switching in favour of a quarter-point drop, as voted for by Bailey.It was the first time since the BoE became independent of the UK government in 1997 that a second vote had to be held. "Looking ahead, interest rates are expected to be 3.5 percent in a year's time, which is slightly higher than before the (latest) meeting," noted Kathleen Brooks, research director at XTB trading group.Expectations that the rate will remain at four percent for longer boosted the British pound.The BoE's main task is to keep Britain's annual inflation rate at 2.0 percent, but the latest official data showed it had jumped unexpectedly to an 18-month high in June.The Consumer Prices Index increased to 3.6 percent as motor fuel and food prices stayed high.
The BoE on Thursday predicted that the annual inflation rate would peak at four percent next month.
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