Bank of England cuts rates by 25 basis points to 4%

It was a 5-4 vote to cut interest rates

The Bank of England on Thursday cut its key interest rate by a quarter point to four percent in a bid to boost a struggling UK economy.

Alongside the expected decision, the BoE forecast British economic growth to hit 1.25 percent this year, slightly better than the central bank's previous estimate of one percent.

Difficulty reaching an agreement meant the Monetary Policy Committee had to hold two rate votes for the first time in its history.

With the MPC split over how to respond to an inflation rate that the BoE forecasts will soon be double its 2% target and a recent worsening of job losses, Bailey and four colleagues backed lowering Bank Rate to 4% from 4.25%.

But that was only after a first round of voting ended in a 4-4-1 split with external MPC member Alan Taylor initially backing a half-point cut.

The four members of the MPC who backed keeping rates on hold included Clare Lombardelli, the deputy governor for monetary policy, who broke from the majority for the first time.

The BoE revised up its forecast for a peak in inflation to 4% in September from 3.7%. It said it would remain alert to the risk that the increase in prices - especially those of food - pushes up wage deals and longer-term price pressures.

"Overall, the MPC judges that the upside risks around medium-term inflationary pressures have moved slightly higher since May," the summary of the meeting said.

The BoE said it expected inflation to return to its 2% target only in the second quarter of 2027, three months later than its previous forecast.

Inflation has been above the BoE's 2% target almost constantly since May 2021.

The British central bank said it expected economic growth of 0.3% in the July-to-September period, up from 0.1% in the second quarter.

Its longer-term growth forecasts were little changed from its report in May with annual growth of just over 1% in the coming years.

*With Agency Inputs