--UK BOE cites weaker world econ activity as factor in rate cut
--UK BOE says pick-up in RPIX partly due to erratic factors
--UK BOE: Monetary policy needs to sustain domestic demand growth
--UK BOE says 25-bp cut needed to keep RPIX on track for 2.5% aim
--UK BOE: Stlg strength adding to pressures on parts of UK econ
--UK BOE sees signs of weakening UK investment growth
--UK BOE: Aggregate demand/output growth weaker than projected
London, Aug. 2 (BridgeNews) - The Bank of England's Monetary Policy Committee on Thursday surprised analysts and market participants by cutting its key interest rate by 25 basis points to 5.0%. Economists had forecast that the MPC would be too concerned about the strength of consumer demand to cut rates, despite the increasingly gloomy news from the manufacturing sector.
The MPC justified its decision by citing greater weakness than expected in the world economy. It said this weakness coupled with the persistent strength of sterling was "adding to the pressures on the externally exposed sectors of the UK economy."
The MPC said there were also signs of weakening investment growth in the U.K. and it argued that monetary policy had to balance the deterioration in the world economy by maintaining domestic demand growth. The cut followed two months of unchanged rates and means the MPC has now lowered rates from 6.0% at the turn of the year to 5.0% in August. For the full text of the BOE statement accompanying its interest rate decision, see story .13408.