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The
central bank's policymakers voted 5-4 to reduce the base rate by
a quarter of a percentage point to 3.75% on Thursday, the lowest
since February 2023.
The move came a day after the Office for National Statistics
reported that consumer price inflation slowed to 3.2% in the 12
months through November, from 3.6% a month earlier.
The figure was below the Bank of England’s forecast of 3.4%.
That gave policymakers room to cut interest rates in an effort
to bolster Britain’s stagnant economy. Statistics released
earlier this week showed a weakening jobs market, with the
number of job vacancies declining and the unemployment rate
rising to 5.1%, the highest since January 2021.
“Unemployment, underemployment and flows from employment to
unemployment have all risen,” Bank of England Gov. Andrew Bailey
said in a statement. “While I do not yet see conclusive evidence
of a sharper downturn in the labor market, we should be
vigilant.”
Even so, the bank’s Monetary Policy Committee was divided on
whether to cut interest rates, with four members remaining
focused on the fight against inflation, which is still well
above the Bank of England’s 2% target.
British consumer prices are also rising faster than in other
parts of Europe and North America. The inflation rate in the 20
European countries that use the euro currency remained at 2.1%
in November. The U.S. inflation rate was 3.0% in September, the
latest figures released because of the government shutdown.
Lower interest rates help spur economic growth by reducing
borrowing costs, which can lead to increased spending by
consumers and boost investment by businesses. But that can also
fuel higher prices.
Central bankers have to weigh those competing forces, trying to
prevent inflation from eroding the value of earnings and savings
without putting an unnecessary brake on economic growth.
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