The Bank of England cut interest rates on Thursday for only the second time since 2020 and said future reductions were likely to be gradual as it predicted the British government's first budget would lead to higher inflation and economic growth.

The central bank said that future cuts would be gradual amid higher inflation forecasts after the new government introduced spending and tax increases in its budget.

The markets and economists expect the Bank of England will cut its bank rate by 25 basis point to 4.75% on Thursday. It will be the second such reduction in borrowing costs since the U.K. central bank began easing policy in August.