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The Bank of England trimmed interest rates on Thursday to help shore up the economy but policymakers remain worried about inflation, dampening hopes of rapid fire rate cuts. The Bank lowered its key rate by a quarter percentage point to 5.25 percent, following a similar cut in December, 2007. All 60 economists polled by Reuters had forecast the move. Hopes of a more dramatic cut were dashed, despite calls from retailers for a reduction to 5%.

The Bank recently hinted that borrowers expecting similar cuts to those seen last month in the US would be left disappointed. The US Federal Reserve slashed rates by 1.25% in less than two weeks in an attempt to stave off an economic recession. Rising inflation on this side of the Atlantic has left policymakers with a difficult task. Oil prices surged to record highs this year and households are also facing steep hikes in energy bills, with E.ON yesterday becoming the latest to increase gas and electricity prices.

The cut – the second in three months – comes as consumers increasingly struggle against tighter borrowing conditions amid the credit crunch. Businesses and retailers welcomed the move, although some were left disappointed that the Bank had not made a more dramatic cut. The MPC said the UK was seeing slowing growth and a drop in consumer spending, with households and businesses hit by the credit squeeze.

But it cautioned that soaring oil prices and higher energy bills may send inflation “sharply” higher in the coming months, highlighting the difficult balancing act faced by the MPC. There had been concerns that mortgage firms would fail to pass on the cut as the credit crisis has caused wholesale money market costs to soar.