Highlights
The Bank of England lowered its key interest rate by 25 basis points to 5.0 percent this morning as expected. The Bank previously had lowered rates at its February 2008 meeting. Although the Bank has now lowered its interest rate a total of 75 basis points since December 2007, it still has the highest interest rate among the G7 countries. While fourth quarter 2007 growth estimates were still on the robust side, recent monthly data have indicated that the economy is slowing as a combination of past rate increases take hold and the global credit crunch shows signs of impacting key sectors, especially housing. However, inflationary pressures also exist in the economy putting the inflation targeting bank in somewhat of a dilemma. At 2.5 percent on the year, CPI continues to be above the Bank's 2 percent inflation target. In its statement the Bank said

"CPI inflation rose to 2.5% in February. The Committee expects inflation to rise further this year, reflecting the continuing impact of higher energy and food prices, as well as the recent depreciation of sterling on import costs. Such pressures are already evident in producer input costs and pricing intentions.

"Even if commodity prices remain at their current high levels, inflation should fall back. But to ensure that inflation meets the 2% target in the medium term, the Committee needs to balance two risks. On the upside, above-target inflation this year could raise inflation expectations so that, in the absence of some margin of spare capacity, inflation would remain above the target. On the downside, the disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target.

"In the Committee's judgement, the balance of these risks to the inflation outlook in the medium term justifies a cut in Bank Rate this month. Credit conditions have tightened and the availability of credit appears to be worsening. While the recent depreciation in sterling will support net exports, the prospects for output growth abroad have deteriorated. In the United Kingdom, business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year. This should help to keep domestic inflationary pressures in check in the medium term.

"Against that background, the Committee judged that a reduction in Bank Rate of 0.25 percentage points to 5.0% was necessary to meet the 2% target for CPI inflation in the medium term.

"The minutes of the meeting will be published at 9.30am on Wednesday 23 April."

2008 Release Schedule

Released On: 1/10 2/7 3/6 4/10 5/8 6/5 7/10 8/7 9/4 10/8 11/6 12/4