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Interest Rates and Monetary Policy: Key Economic Indicators

Published Thursday, March 7, 2019

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 2007-2009 financial crisis. Rates have stayed at historically low levels since then, close to or below 0% in most developed economies.

UK (Bank of England)

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to leave interest rates unchanged at 0.75% at its February policy meeting. The last change occurred in August 2018 when the MPC raised rates from 0.5% to 0.75%.

UK interest rates

In its February Inflation Report, the MPC downgraded its forecast for GDP growth in 2019 from 1.7% to 1.2% and lowered its expectations for inflation. The MPC targets an inflation rate of 2%. These forecasts assume a smooth Brexit transition.

The MPC noted the uncertainty with regards to Brexit, in particular the prospect of a ‘no-deal’ departure from the EU and its potential negative impact on the economy. It also continued to suggest that future “gradual and limited” interest rate rises may be necessary over the next few years if there is upward pressure on inflation, notably from higher earnings growth.

The MPC’s quantitative easing (QE) programme, where the Bank creates new money to buy financial assets, remains active and unchanged. QE totals £445 billion of assets, £435 billion of which are government bonds and £10 billion of commercial debt.

Eurozone (European Central Bank)

At its March policy meeting, the European Central Bank (ECB) left its main interest rate unchanged at 0.0% and, in a surprise move, pledged to kept rates unchanged until 2020 in response to weak economic data. New purchases of assets under its quantitative easing programme ended in December 2018 and are worth a total of €2.6 trillion (mostly government bonds of Eurozone countries).

United States (Federal Reserve)

At its two-day policy meeting ending on 30 January, the Federal Reserve kept interest rates unchanged in a range of 2.25-2.50%. Rates have risen gradually since December 2015 from 0-0.25% against a backdrop of jobs growth and a stronger economy.

Commons Briefing papers SN02802

Author: Daniel Harari

Topics: Economic policy, Economic situation

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