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Interest Rates and Monetary Policy: Key Economic Indicators

Published Thursday, September 8, 2016

Interest Rates and Monetary Policy: Data on interest rates from the UK, eurozone and the US; a summary of the Bank of England’s and international, quantitative easing policy.

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Central banks around the world cut interest rates sharply during the financial crisis of 2007-2009. Rates have remained at historic lows since then, with key interest rates close to or below 0% in most developed economies.

UK - Bank of England

The Bank of England’s Monetary Policy Committee (MPC) cut its main interest rate (the Base Rate) from 0.5% to 0.25% on 4 August 2016, the first change since March 2009, and the lowest since the Bank was founded in 1694. The MPC cited the weaker outlook for the economy following the vote to leave the EU as its main reason for cutting rates.

UK interest rate

As well as the 1/4%–point cut to interest rates the MPC agreed a series of other measures designed to boost the economy:

  • Expanded its quantitative easing (QE) programme, where the Bank creates new money to buy financial assets from financial institutions, by £70bn (£60bn of government debt and £10bn of corporate debt). QE was first introduced in March 2009 and now totals £445 billion.
  • Introduced a new Term Funding Scheme (TFS) intended to ensure that banks pass through the MPC’s rate cut to their customers (consumers and businesses). The Bank will offer cheap loans to banks that is linked to the amount of lending they are providing, with more being available to banks that expand their lending.

Monetary policy was left unchanged at the MPC’s 15 Sept. meeting.

Eurozone (European Central Bank)

The European Central Bank (ECB) lowered its main interest rate for the Eurozone to 0.0% and the deposit rate to -0.4% in March 2016. The ECB is also conducting a QE programme, intended to stimulate the economy, whereby it buys €80bn worth of assets (mostly government bonds of Eurozone countries) a month. Policy was left unchanged at its latest meeting on 20 October.

United States (Federal Reserve)

The US Federal Reserve increased its main interest rate by 0.25%-points in December 2015 to a range of 0.25-0.5%. This was the first increase since 2006. It was left unchanged at its latest meeting on 21 Sept.


Commons Briefing papers SN02802

Authors: Daniel Harari; Anna Moses

Topics: Economic policy, Economic situation

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