The Bank of England has cut interest rates to help meet its 2% target for CPI inflation.

UK retailers are today breathing a sigh of relief following the Bank of England’s decision to cut interest rates a quarter percentage point to 5.25%.

In a statement released Thursday, the Monetary Policy Committee said the reduction was necessary to meet the 2% target for CPI inflation in the medium term.

The cut will be welcomed by retail businesses, many of whom fear increased mortgage repayments and concerns over the global economy will cause consumers to tighten their belts.

The Committee statement said: “The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued. In the UK, credit conditions for households and businesses are tightening. Consumer spending growth appears to have eased.

“Although the substantial fall in the sterling exchange rate is likely to promote re-balancing of total demand, output growth has moderated to around its historical average rate and business surveys suggest that further slowing is in prospect. These developments pose downside risks to the outlook for inflation.”

The Committee said that it expects higher energy and food prices to raise inflation, “possibly quite sharply”, in the coming months, adding that the lower level of sterling will boost import costs.

Retailers had called for a cut last month, however were disappointed when the rate remained at 5.5%. The last change was a reduction of 0.25% on 6 December 2007.

By Natasha Piscitelli