The Bank of England cut rates in line with expectations by 25bp to 5.25 percent, marking the second effort to make policy more accommodative since December. The central bank cited deteriorating prospects for global output growth and tightening credit conditions for consumers and businesses alike. While the Monetary Policy Committee did say that rocketing energy and food prices are “expected to raise inflation, possibly quite sharply,” the subsequent cooling effect on demand growth is anticipated to be enough to “return inflation to target in the medium term.” Essentially, the Bank of England is more concerned that slowing growth will bring inflation below target than they are concerned that inflation will accelerate out of control, suggesting that more rate cuts may loom on the horizon as long as economic data points to deteriorating conditions.
The British Pound has traded choppily above 1.95 on the news, as it appears that the bulk of this rate cut was already priced in to the GBP/USD pair, though a drop towards another layer of support below at 1.9475/80 is not out of the question.
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For the full text of the minutes, visit the Bank of England's website.
