LONDON -- The British central bank announced on Thursday that it would cut the interest rate from 4.75 percent to 4.5 percent, citing concerns about stagnant growth.

The decision was made by the Monetary Policy Committee of the Bank of England (BoE), which voted 7-2 to cut rates. Two committee members called for a bigger rate cut of half a percentage point.

December's inflation rate dropped from 2.6 percent to 2.5 percent, with core inflation falling from 3.5 percent to 3.2 percent, while services inflation experienced an even bigger drop from 5 percent to 4.4 percent, providing a base for a potential interest rate cut.

The BoE said that the economy's potential growth rate had dropped from 1.5 percent to 0.75 percent year-on-year. The bank also indicated that while it expects last October's Budget to boost economic growth by 0.75 percent, thanks largely to greater public investment, the National Insurance rise will weigh down on activity, particularly by reducing employment.