Press Release Summary: The first interest rate reduction this year has been announced by the Bank of England.
Press Release Body: London (Loans-park) February 11, 2008: The monetary policy committee of the Bank of England reduced its base rate of interest by quarter percentage point, bringing it down to 5.25%. The central bank is facing its toughest monetary policy since it started administering the rate of interest in 1997.
The cut in interest rate is aimed at shoring up the economic growth, but the policymakers are simultaneously concerned with the rise in inflation, dampening any hope of rapid rate cuts in the future. The Bank said: "The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below target in the medium-term against the risk that elevated inflation expectations keep inflation above target."
The US Fed has cut the interest rates by 125 basis points in a bid to avoid any possible recession in its economy. However, the Bank of England is unlikely to follow drastic cuts. Policymakers have already said that they would prefer a gentle easing of economic growth. The BoE governor Mervyn King has warned over possible increase in inflation rate, cooling down the predictions that drastic easing in interest rates lie ahead.
Alan Clarke, an economist at BNP Paribas, said: "Ultimately what they\'re saying is that some degree of slowdown in the economy is desirable to get inflation down over the medium term, so don\'t expect us to cut like bandits like the Federal Reserve."
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