LONDON, Aug 2 Reuters The Bank of England39;s first interest rate cut in more than four years will help to foster a cautious sense of optimism about Britain39;s longstruggling economy, but the scale of the growth challenge facing the new government remains huge.

The BoE lowered its benchmark rate to 5.0 on Thursday, from a 16year high of 5.25, offering a bit more relief to households and businesses who are emerging from the inflationary shocks of the COVID pandemic and Russia39;s invasion of Ukraine.

Data published a few hours before the BoE announcement showed British manufacturers enjoyed a stronger July than their peers in much of the rest of Europe and Asia.

British shares which have underperformed since the 2016 Brexit vote added to recent gains after the BoE39;s rate cut, with the FTSE 250 index of mediumsized firms hitting its highest since February 2022, before following other markets and falling later in the day on worries about the U.S. economy.

The lowering of Bank Rate from its 16year high and the signs of economic recovery after a shallow recession in 2023 are helpful for new Prime Minister Keir Starmer, who has made economic growth chiefly via reforms to boost the country39;s weak productivity growth the top priority of his government.

BoE Chief Economist Huw Pill, who voted to keep rates on hold, welcomed the improved outlook for the economy, even if it still represented a historically tepid pace of growth at around 1 a year between 2024 and 2026….