LONDON, April 10: The Bank of England cut its key interest rate by a quarter of a point on Thursday to 5.00 per cent, balancing the risks of rising near-term inflation and economic slowdown spread by the credit crisis.

The decision, which was in line with market expectations, took short-term borrowing costs to the lowest level since January 2007 and came amid growing concerns over the country’s slowing housing market.

“Unsurprisingly a deepening in the credit crisis and the associated downside risks to activity seems to have been the main motivating factor,” said Investec analyst Phillip Shaw.

The BoE said in a statement that its rate-setting Monetary Policy Committee had decided that the economy would probably experience a slowing of growth because of the global credit squeeze, and this could send inflation below target in the long term.The Bank of England said in a statement on Thursday: “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.”

British inflation rose to 2.5 per cent over the 12 months to February and was driven by soaring domestic energy bills. The BoE’s chief task is to keep inflation close to 2.0 per cent target.

The BoE acknowledged that near-term inflation would shoot higher because of soaring commodity prices, with crude oil striking a record high above 112 dollars per barrel on Wednesday.—AFP