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Bank cuts interest rates to 5.25% Bank cuts interest rates to 5.25%
(10 minutes later)
The Bank of England's rate-setting committee has cut interest rates to 5.25% from 5.5% in an attempt to stimulate growth in the UK economy. The Bank of England's rate-setting committee has cut interest rates to 5.25% from 5.5% amid signs that the UK economy is slowing down.
But the Bank of England said that growth needs to slow to keep inflation under control. Analysts had widely predicted the move, which followed recent cuts in the US where the Federal Reserve had slashed its borrowing costs to 3% from 4.25%.
The decision follows recent rate cuts by the US Federal Reserve, which sliced rates from 4.25% to 3%. However, the Bank of England signalled it was unlikely to be as aggressive because of fears over price growth.
Many analysts expect more UK cuts this year, but say inflation fears will stop the UK cutting rates as much as the US. The Bank said it needed to ensure that growth and inflation were balanced.
"Inflation at 2.1% in December was close to the 2% target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months," the Bank's statement said."Inflation at 2.1% in December was close to the 2% target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months," the Bank's statement said.
The rate decision came shortly after E.On became the fifth major power company to raise gas and electricity prices this year. "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," it added.
Thursday's rate decision came shortly after E.On became the fifth major power company to raise gas and electricity prices this year.
Further cutsFurther cuts
The employers' organisation the CBI welcomed the cut and said it was pleased there had not been a bigger cut. The employers' organisation the CBI welcomed the rate cut and said it was pleased there had not been a bigger reduction.
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"It is clear that it is a delicate balance with inflation pressures," said the CBI's Ian McCafferty."It is clear that it is a delicate balance with inflation pressures," said the CBI's Ian McCafferty.
"A quarter point now and then watching very carefully for how inflation develops in the coming months is the best strategy.""A quarter point now and then watching very carefully for how inflation develops in the coming months is the best strategy."
But the British Chambers of Commerce disagreed.But the British Chambers of Commerce disagreed.
"Threats to growth are much more acute now than risks of higher inflation, and we would have welcomed a bold UK move to 5% today," said its economic adviser David Kern."Threats to growth are much more acute now than risks of higher inflation, and we would have welcomed a bold UK move to 5% today," said its economic adviser David Kern.
Mortgage ratesMortgage rates
Some observers had voiced concern that not all mortgage lenders would pass the interest rate cut onto their customers, limiting the cut's impact on the economy.Some observers had voiced concern that not all mortgage lenders would pass the interest rate cut onto their customers, limiting the cut's impact on the economy.
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But many banks have already said they will pass on the cut.But many banks have already said they will pass on the cut.
Halifax, Nationwide, Abbey, NatWest and Royal Bank of Scotland have announced they will reduce their standard variable rates.Halifax, Nationwide, Abbey, NatWest and Royal Bank of Scotland have announced they will reduce their standard variable rates.
Others had said in advance of the announcement that they would pass on the rate cut in full. These include Lloyds TSB and its Cheltenham & Gloucester unit, Barclays' mortgage arm the Woolwich, HSBC and First Direct. Others had said in advance of the announcement that they would pass on the rate cut in full.
These include Lloyds TSB and its Cheltenham & Gloucester unit, Barclays' mortgage arm the Woolwich, HSBC and First Direct.
Many of them will not be cutting their rates for existing borrowers until 1 March, with HSBC not cutting until 7 March.Many of them will not be cutting their rates for existing borrowers until 1 March, with HSBC not cutting until 7 March.
Interest rates will also be cut for savers.Interest rates will also be cut for savers.