By BridgeNews
London--Feb. 8--The Bank of England's Monetary Policy Committee cut the key U.K. lending rate by 25 basis points to 5.75% on Thursday, in a move that was widely expected by analysts and market participants. A BridgeNews survey showed some 90% of analysts at leading financial institutions had predicted the cut.
The rate cut ended a prolonged period of interest rate stability. It was the first move since February 2000 and the first cut since June 1999.
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The MPC issued no statement to explain the move, but will elaborate on its thinking when it publishes its quarterly inflation forecast on Feb. 14. The minutes from this latest meeting will be published on Feb. 21.
The MPC's move followed heavy rate cuts in the United States, with the Federal Reserve lowering its federal funds rate by 100 basis points in the space of just one month, its most aggressive move in 16 years.
While there has been mounting evidence of a sharp slowdown in the U.S., the picture in the U.K. has been more mixed with some activity and consumer demand numbers still robust. Inflation, however, has been persistently below the MPC's target of 2.5%.
At the January meeting the MPC was split over whether to lower rates, voting five to four against a 25-basis-point reduction.
Industry groups and city economists welcomed the move as a precaution against contagion from the struggling U.S. economy. They said the publication of the Quarterly Inflation report next week would contain some clues about the likelihood of another cut in the coming months but there are concerns the upcoming budget and general election might cramp the MPC's room for maneuver.
"Let's see what the inflation report says next week. The interesting thing will be on the inflation profile for the next year. There are some risks that RPIX stays in the 1.5-2.0% band for the first half of this year. It's going to be a benign story. The key justification for this move, however, will be the slowing world trade environment on the back of the U.S. slowdown," Societe Generale economist Brian Hilliard said. The main mortgage lenders also reacted immediately by cutting their lending rates. Halifax, Abbey National and HSBC all lopped 25 basis points off their standard variable rates. End
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