Its Monetary Policy Committee had been expected to wait until next year to lower the official bank rate but acted earlier after a raft of statistics were released this week indicating a cut was needed to stop the economic slowdown.
In a statement, the MPC says forward-looking surveys suggest spending is moderating but financial market conditions have deteriorated which, together with the credit crunch, is “posing downside risks to the outlook for both output and inflation further ahead”.
On the subject of inflation, the MPC says: “CPI inflation was 2.1 per cent in October. Higher energy and food prices are expected to keep inflation above the target in the short term.
“Although upside risks to inflation remain, which the committee will continue to monitor carefully, slowing demand growth should ease the pressures on supply capacity, bringing inflation back to target in the medium term.
“Against that background, the committee judged that a decrease in bank rate of 0.25 percentage points to 5.5 per cent was necessary to meet the 2 per cent target for CPI inflation in the medium term.”
In a sign of how efficient the PR machine is these days, a press release from the CBI landed in my inbox minutes after the announcement was made
According to CBI chief economic adviser Ian McCafferty, the decision will hopefully “help stabilise the money markets and minimise any future impact on other sectors”.
The next rates decision is due on 10 January 2008.