The Bank of England reduced its key interest rate by a bigger-than-expected 1.5 percentage points to alleviate the mounting pressures on economy.
At the end of its two-day meeting, the Monetary Policy Committee decided to slash the official Bank Rate paid on commercial bank reserves to 3% from 4.5%. Economists had expected the BoE to cut the rate by 50-100 basis points.
“At its November meeting, the Committee therefore judged that a significant reduction in Bank Rate was necessary now in order to meet the 2% target for CPI inflation in the medium term”, the central bank said.
In October, policymakers stood united in deciding on a 50 basis points rate cut as the economy apparently entered recession. In a coordinated move, the BoE, the Bank of Canada, the European Central Bank, the US Federal Reserve, Sveriges Riksbank and the Swiss National Bank had slashed their key interest rate on October 8.
Further, the BoE noted that the risks to inflation have shifted decisively to the downside in recent weeks. Consequently, the MPC has revised down its projected outlook for inflation which, at prevailing market interest rates, contains a substantial risk of undershooting the inflation target, the statement read.
In September, annual inflation had accelerated further to 5.2%, the highest since records began in January 1997. However, inflation should soon drop back sharply, BoE added.
The BoE is slated to issue the minutes of the meeting on November 19.
