Bank of England OKs first interest rate cut in two years

The Bank of England cut its benchmark interest rate for the first time in more than two years Thursday in an effort to shore up the economy in the face of a global credit crunch.

The quarter-point cut, to 5.5%, reversed an increase in July. The bank said it was needed because economic growth was slowing and the state of financial markets was worsening.

“Although upside risks to inflation remain,” the central bank said in a statement, “slowing demand growth should ease the pressures on supply capacity, bringing inflation back to target in the medium term.”

Jean-Claude Trichet, president of the European Central Bank, sounded a nearly opposite note Thursday, telling reporters in Frankfurt that some of that body’s policymakers discussed raising interest rates before deciding on no change.

There is “strong short-term upward pressure on inflation,” Trichet said at a news conference. The Frankfurt-based central bank, which handles monetary policy for the euro zone, “stands ready to counter upside risks to price stability,” he said.

After the decision, the British pound neared a 2 1/2 -month low against the dollar in London before rebounding. In New York trading, the pound fetched $2.029, up from $2.026 late Wednesday.

Britain’s slowing economy adds to the woes faced by Prime Minister Gordon Brown as he tries to revive the Labor government’s popularity, which hit a 19-year low last month, according to pollster ComRes.

Opposition lawmakers have criticized Brown, who served as finance minister for a decade before taking over from Tony Blair in June, for encouraging consumers to rack up a record debt burden.