LONDON — The Bank of England is anticipated to implement its third interest rate cut in a span of six months on Thursday, even as inflation levels continue to exceed the established target.

Most analysts predict that the nine-member Monetary Policy Committee will reduce the main interest rate by 0.25 percentage points, bringing it down to 4.50%. This adjustment would mark the lowest level since mid-2023. The base rate significantly impacts the affordability of mortgages and loans for individuals, as well as the interest rates banks offer on savings accounts.

Financial markets are particularly focused on the economic forecasts that will accompany the rate decision, along with the remarks from Governor Andrew Bailey during his subsequent briefing.

Andrew Wishart, a senior economist at Berenberg Bank, noted that the Bank of England has been alternating cuts in prior meetings; however, the current stagnant economic conditions and rising unemployment necessitate a more immediate response.

The primary duty of the rate-setting committee is to ensure that inflation, as gauged by the consumer price index, reaches a target rate of 2% over the next few years.

Although inflation currently sits at 2.5% and is projected to rise due to recent business tax increases instituted by the new Labour government, the general consensus among economists is that it will trend downward toward the target, thus enabling the committee to proceed with a cut.

Recent official data revealed a surprising drop in the inflation rate to 2.5% in December, primarily due to easing price pressures in the services sector, which constitutes about 80% of the economy in the U.K.

The stagnation in U.K. economic growth may also prompt the rate-setting board to cut borrowing costs, as this scenario tends to exert downward pressure on inflation.

The current inflation rates have decreased significantly from the exceptionally high levels seen in previous years, largely as a result of central banks aggressively raising borrowing costs from near-zero levels during the COVID-19 pandemic. Supply chain disruptions initially contributed to higher prices, which were further exacerbated by Russia’s invasion of Ukraine that led to increased energy prices.

As inflation has eased from its multi-decade peaks, central banks, including the U.S. Federal Reserve, have begun to lower interest rates. Nevertheless, most economists do not expect rates to revert to the extremely low levels that were seen in the aftermath of the 2008-2009 financial crisis and throughout the pandemic.