The Bank of England cut interest rates on Thursday for the third time in about six months, amid signs of weak economic growth in Britain and an unexpected slowdown in inflation.
Policymakers cut the key rate a quarter point to 4.5 percent as the bank lowered its forecasts for economic growth this year. Two members of the nine-person rate-setting committee voted to lower rates by a larger half-point move.
Andrew Bailey, the governor of the central bank, said policymakers would take “a gradual and careful approach to reducing rates further” as they monitored economic developments in Britain and abroad.
The inflation rate slowed slightly to 2.5 percent in December, when economists had been expecting the rate to hold steady. Crucially, inflation in the services sector, which has been particularly stubborn, slowed to 4.4 percent from 5 percent in November.
Even as inflation has dropped substantially from its double digit highs just a couple of years ago, the Bank of England has been particularly cautious in easing monetary policy. Last year, it cut rates less than its counterparts in the United States, Canada and the eurozone.
British policymakers remained concerned about lingering inflationary risks, particularly as wage growth remained relatively strong, and uncertain about the impact of recent spending and tax changes by the government.
On Thursday, the bank said it expected inflation to accelerate this year, peaking at 3.7 percent in the third quarter, in part because of rising energy costs. That’s nearly a full percentage point higher than the forecast three months ago. But policymakers said they didn’t expect this jump in inflation to lead to additional underlying price pressures.
In the past few weeks, central bankers in Britain and elsewhere have been grappling with the added risk of a global trade war. Although the inflationary impact of higher tariffs imposed by President Trump on various countries and subsequent retaliatory actions is hard for economists to predict in advance of those policies, they anticipate that it will be a drag on economic growth.
Britain has not been the target of threats from Mr. Trump, unlike the country’s largest trading partner, the European Union. That could weigh on the British economy, which has already been experiencing lackluster growth.
The bank downgraded its economic forecasts for the year, to 0.75 percent from 1.5 percent. They said they expected growth to pick up midyear.
Traders have increased their bets on how many more times the Bank of England will cut rates this year. Before the rate announcement on Thursday, Britain’s benchmark stock index, the FTSE 100, hit a record high in midday trading.
Still, British policymakers have been more cautious in easing policy than their counterparts in the eurozone as they wait to see how additional government spending feeds through to the economy and how British employers might respond to tax increases that will go into effect in April.
Some companies have already responded by cutting jobs. If more follow, that could further weaken the economy and add to pressure to keep cutting rates. But other companies might pass on the higher tax bills to customers through higher prices, adding inflationary pressures.
