The Bank of Englandâs Monetary Policy Committee today decided to reduce the official interest rate paid on commercial bank reserves by 0.25% from 5.75% to 5.5%. The decision was driven mainly by the slowdown in the economical output and moderating consumers’ spendings.
Other problems noted by the Committee, which are “posing downside risks to the outlook for both output and inflation further ahead”, relate to the financial sector affected by the mortgage banking crisis.
As the inflation rate for October was holding just 0.1% above the Bank of England target value, Committee expects it go down in November and December to meet the target value of 2.0%:
Against that background, the Committee judged that a decrease in Bank Rate of 0.25 percentage points to 5.5% was necessary to meet the 2% target for CPI inflation in the medium term.
The rate cut was an expected event and has been already played out by the markets with GBP falling down against all major currencies yesterday and earlier today. The downtrend may now continue, but a certain correction will probably follow soon after the BoE decision publication.
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