Bank of England Lowers Benchmark Rate

The Bank of England cut its key short-term interest rate Thursday to 4.5%, from 4.75%, to revive sagging household and business spending, but analysts said the move probably didn’t signal a sustained decline in rates.

The Monetary Policy Committee’s first cut in rates in two years comes as growth in the world’s fourth-largest economy has cooled rapidly. The decision was widely expected by analysts and financial markets.

Explaining its move, the central bank said there was a threat that consumer spending would weaken, in spite of signs that such spending was picking up.

Policymakers, in their statement, did not mention the deadly terrorist bombings that shocked London in July.

The bank said that a rising stock market -- now trading at its highest in more than 3 1/2 years -- and the recent fall in the pound should boost future growth, which most analysts said signaled that any additional rate cuts probably were a way off.

It also said that rising oil prices, which are trading near record highs, could push up inflation in the near-term.

“This move represents a bit of economic fine-tuning on the MPC’s behalf, with a view to shoring up domestic demand. Rates may fall further yet, but the committee will not be in any great hurry,” said Andrew McLaughlin, chief economist at the Royal Bank of Scotland Group.

Next week’s quarterly inflation report, in which the bank outlines its forecasts for growth and inflation, is key to where rates will go in the coming months. A Reuters poll of 42 economists taken after Thursday’s decision found that 32 expected rates would fall again by the end of next year.

Most economists expect the bank’s outlook for growth to have deteriorated significantly since it made its last set of forecasts, largely because of revisions by official statisticians to growth rates in the recent past.

By contrast, the European Central Bank on Thursday left its base interest rate unchanged at 2%, where it has remained for more than two years. Recent surveys have suggested that European business conditions were improving, backing the bank’s view that euro zone growth would gain momentum.