London, Feb 6 (Reuters) - The Bank of England reduced interest rates by a quarter of a percentage point on Thursday, citing a temporary surge in inflation forecasts for the year. Amid weaker growth, two officials advocated for a larger rate cut.
The cut to 4.5% matched economists' expectations in a Reuters poll, while external members Catherine Mann and Swati Dhingra dissented, favoring a cut to 4.25%.
Bank of England Governor Andrew Bailey stated the BoE would monitor the UK economy and global developments closely" and adopt a "gradual and careful approach to further rate reductions.
The British economy has stagnated due to concerns over tax increases, global trade tensions, and rising costs. The BoE projected a 0.1% contraction in the fourth quarter.
Thursday's rate adjustment marks the third cut since August, leaving British rates comparatively high among advanced economies, just above the U.S. Federal Reserve's range of 4.25-4.5%.
Analysts previously anticipated four rate cuts this year, lowering the main interest rate to 3.75%. However, recent market sentiments shifted towards a reduction to 4%.
The BoE's outlook for the UK economy deteriorated, with inflation expected to peak at 3.7% in the third quarter due to energy prices and regulated bill increases.
The central bank revised growth forecasts downward for 2025 but slightly upward for 2026 and 2027. Concerns about U.S. tariffs potentially impacting inflation in Britain were raised.
The two policymakers advocating for an immediate rate cut to 4.25% cited varied reasons. One supported an "activist" approach to send a clear market signal, while the other believed weak growth would lead to inflation returning to target in the medium term.