LONDON (Reuters) – The Bank of England held its main interest rate steady at 5.0 percent on Thursday, after cutting it by 25 basis points at its August policy meeting, as the central bank warned that the easing cycle should not be too rapid.

The BoE’s monetary policy committee voted 8-1 to keep rates at current levels.

“It is essential that inflation remains low. We must be careful not to cut rates too quickly or too sharply,” BoE Governor Andrew Bailey was quoted as saying in the policy statement.

The institution also underlines that conditions on the labour markets are easing, although tensions remain higher than their historical average.

The central bank nevertheless lowered its inflation forecast to around 2.5% in the fourth quarter of 2024, from 2.75% projected in August.

Growth for the third quarter is revised slightly downward, to 0.3% quarter-on-quarter against 0.4% projected in August.

The BoE has also decided to reduce the size of its balance sheet by 100 billion pounds until September 2025, a pace comparable to that of the previous two years.

The decision to reduce the size of the central bank’s balance sheet has been controversial in the UK, as the bank has been selling bonds it bought at higher prices at a loss. These losses are being financed by British taxes.

The BoE is also posting losses on the interest it pays on its funding used to buy Gilts, which is now much higher than the income from these securities.

Many economists believe that British Chancellor of the Exchequer Rachel Reeves could change British budget rules to limit the impact of her losses on the state budget.

The BoE raised rates 14 times between December 2021 and August 2023, before opting for a first cut in August 2024.

(Andy Bruce, David Milliken, written by Corentin Chappron, edited by Jean-Stéphane Brosse and Sophie Louet)

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