Bank of England Cuts Interest Rates, but Warns of Sticky Inflation

The Bank of England cut interest rates as expected on Thursday, but policymakers said that it would take longer for inflation in Britain to return to the bank’s 2 percent target after the new government’s budget increased spending.The central bank lowered interest rates by a quarter point, to 4.75 percent, but emphasized that future rate cuts were likely to be very gradual as inflation pressures still persisted and recent tax and spending plans by the government — now led by the Labour Party — were likely to add to price pressures.The rate cut on Thursday was the second since August, before which rates had been held at a 16-year high for about a year.“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” Andrew Bailey, the governor of the central bank, said in a statement.But, he added, if the economy evolved as policymakers expected, then rates “will continue to fall gradually from here.” One member of the nine-person rate-setting committee had voted to hold rates at 5 percent.Policymakers have taken a cautious approach to cutting interest rates, even as inflation dropped to 1.7 percent in September, notably below the central bank’s 2 percent target.There are expectations that inflation will climb back above target in the next few months as gas and electricity prices increase.

Several central bank officials have highlighted the risk that inflationary pressures have not been completely stamped out, making it hard to keep inflation at target in the long run.The Bank of England’s decision on Thursday came as investors and governments around the world prepared for the potential implications of the second presidency of Donald J.Trump.

Although there is uncertainty about what policies Mr.Trump will enact, he has proposed higher import tariffs that would likely rock the global economy.Central bankers will be alert to effect of higher yields on government bonds, which have jumped since the...