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UK's central bank lowers key rate

The Bank of England said yesterday it had trimmed its key interest rate by a quarter-point to 5.50 percent and warned of slowing British economic growth as a result of turmoil on world financial markets.

The decision, the first rate cut since August 2005, comes as the world's central banks are grappling with the risk of higher inflation and the economic repercussions of a global credit crunch on other markets.

SLOWING DOWN

"Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow," the British central bank said in a statement announcing the news.

"Conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train, posing downside risks to the outlook for both output and inflation further ahead," it said.

The announcement was made shortly before the European Central Bank was predicted to keep eurozone borrowing costs at 4 percent.

US FED

The US Federal Reserve is meanwhile expected to lower US interest rates to 4.25 percent next week as it attempts to combat credit and housing problems.

Some analysts had expected the Bank of England to freeze borrowing costs because of higher inflation, while others had argued for a cut amid a cooling housing market and the prospect of slowing economic growth.

Prior to this month, the central bank had frozen rates for four months in a row at 5.75 percent -- the highest level for six-and-a-half years -- amid uncertainty over the worldwide credit squeeze.
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