The Bank of England on Thursday kept its key interest rate at 5.0 percent, deciding against consecutive cuts one day after a bumper reduction from the US Federal Reserve.

Following a regular meeting BoE governor Andrew Bailey said the central bank needed "to be careful not to cut too fast or by too much", as UK inflation stays above its target.

Policymakers voted 8-1 for no change, having narrowly backed a cut in August. One member wanted the rate reduced to 4.75 percent this time around.

Official data this week showed UK annual inflation unchanged at 2.2 percent in August from July -- above the BoE's two-percent target rate.

But inflation has retreated massively since striking four-decade highs above 11 percent in late 2022.

The US central bank on Wednesday lowered borrowing costs for the first time since the start of the Covid pandemic by opting for a reduction of 50 basis points.

The European Central Bank (ECB) last week cut for the second time in 2024. Analysts expect the BoE to next trim borrowing costs in November, while Bailey signalled that more easing was on the way.

"The economy has been evolving broadly as we expected," he said. "If that continues, we should be able to reduce rates gradually over time. But it's vital that inflation stays low."

- Pound high -

The British pound hit the highest level against the dollar in 2.5 years following Thursday's decision, with the greenback weakened also by the Fed's decision this week.

"By leaving interest rates at five percent the Bank of England showed it is more like the ECB than the Fed and is cutting interest rates gradually rather than rapidly," noted Paul Dales, chief UK economist at Capital Economics research group.

"We expect only one further 25 basis-points cut this year, at the next meeting in November,  although the pace of cuts may quicken next year with rates eventually falling to three percent."

The BoE hiked borrowing costs 14 times between late 2021 -- when they stood at a record-low 0.1 percent -- and the second half of last year.

Supply-chain disruptions following Covid lockdowns, together with soaring food and energy prices caused by Russia's invasion of Ukraine, sent global inflation surging and led to aggressive rate-tightening by central banks around the world.

The BoE finally cut last month, the first time since early 2020, from a 16-year high of 5.25 percent.

Further reductions could hand Britain's economy a much-needed boost, as retail banks tend to pass on the cuts for home loans, boosting consumers' disposable income.