The Bank of England cut its key interest rate by 0.25% to 5.5% Thursday. Until recently, economists predicted the Bank would leave the rate at 5.5%, but many changed their forecast after economic data released over the past showed a sharp slowdown in consumer confidence and in service-sector growth. Twenty-eight of 62 analysts surveyed by Bloomberg were expecting the 0.25% reduction, while the rest continued to forecast no change. The rate-cut is the first since August 2005; BoE has hiked the rate five times since August 2006. "Even though inflation pressures are a concern, the downside risks to growth seem to be crystallizing," Lloyds economist Kenneth Broux said. "It's all piling up, and that puts the bank under pressure."
"Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow," the Bank said. "Forward-looking surveys of households and businesses suggest spending is moderating, broadly in line with the projections contained in the November Inflation Report. But conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train, posing downside risks to the outlook for both output and inflation further ahead."
The cut came ahead of a rate decision by the European Central Bank (7:45 a.m. EST); the ECB is widely expected to keep rates unchanged at 4%. Earlier this week, the Bank of Canada surprised economists by cutting rates by 0.25% to 4.25%.
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.