Bank of England Slashes Interest Rates Amid Persistent Inflation Concerns

The Bank of England has reduced interest rates for the first time since early 2020, citing eased inflationary pressures. The quarter-point reduction was approved by a narrow vote of 5-4. While some economists support the cut, others argue it could weigh on the already struggling British economy.

The Bank of England has reduced interest rates for the first time since the onset of the COVID-19 pandemic in early 2020, according to a statement released Thursday.

By a narrow margin of 5-4, the nine-member policymaking panel endorsed a quarter-point reduction in the main interest rate to 5%, down from the 16-year high of 5.25%.

Although some economists were uncertain about the rate cut amid persistent price pressures in the services sector, inflation in the U.K. has hit the bank's target of 2%.

Interest rates have remained unchanged for a year following a series of dramatic hikes but signals have suggested a trend toward a cut in recent months.

Bank Governor Andrew Bailey emphasized the importance of keeping inflation low to support economic growth, despite easing inflationary pressures, and warned against lowering rates too rapidly or excessively.

Higher interest rates have mitigated inflation but have also strained the British economy, which has struggled to grow since the pandemic recovery. Critics argue that the Bank of England's cautious approach could further impact economic growth.

Some central banks, including the European Central Bank, have begun reducing rates but remain cautious.

(With inputs from agencies.)