Bank of England cuts interest rates to lowest in almost three years after sharp dip in inflation

The Bank of England on Thursday cut its key interest rate for the first time in four months amid signs that the stubbornly high inflation that has plagued British consumers and businesses is beginning to ease.

Policymakers at Britain’s central bank 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.

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 due to 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.