The Bank of England has cut its benchmark interest rate by a quarter of a percentage point to 5.25 per cent.

The decision by the Bank's Monetary Policy Committee (MPC) had been widely expected.

The Bank says growth needs to slow in order to keep inflation under control.

"Inflation at 2.1 per cent in December was close to the 2 per cent target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months," the Bank said in a statement.

"And the lower level of sterling will boost import costs. The impact on inflation should begin to fade later in the year, but measures of inflation expectations are currently elevated. These developments pose upside risks to the outlook for inflation further ahead.

"Against that background, the Committee judged that a reduction in Bank Rate of 0.25 percentage points to 5.25 per cent was necessary to meet the 2 per cent target for CPI inflation in the medium term."

But the British Chambers of Commerce (BCC) said it was disappointed that rates were not reduced to 5 per cent.

"Threats to growth are much more acute now than risks of higher inflation, and we would have welcomed a bold UK move to 5 per cent today," said BBC economic adviser David Kern.

The Bank's decision follows recent rate cuts by the US Federal Reserve, which lowered rates to 3 per cent from 4.25 per cent. The Fed is trying to keep the US economy from entering a recession.

Analysts said that another quarter point increase remains highly likely in the next couple of months.

In December 2007, the Bank reduced rates by a quarter of a percentage point to 5.5 per cent.