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.Jump to full report >>
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.
The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to leave interest rates unchanged at 0.75% at its December policy meeting. The last change occurred at August’s meeting when the MPC raised rates from 0.5% to 0.75%.
The pound’s fall in value since late 2015 pushed up inflation to around 3% in the second half of 2017 – above the MPC’s 2% target. It has eased somewhat since then; it was 2.3% in November 2018. The MPC expects annual GDP growth of around 1¾% over the next few years (assuming a smooth Brexit adjustment), which it believes is a little above the economy’s trend growth rate, or ‘speed limit’, of around 1½%. As a result, further gradual rate raises have been signalled but market observers do not expect any changes until after Brexit, scheduled for 29 March 2019.
The MPC’s quantitative easing (QE) programme, where the Bank creates new money to buy financial assets, remains active and unchanged. QE now totals £445 billion of assets, £435 billion of which are government bonds and £10 billion of commercial debt.
Mark Carney has agreed to extend his term as Governor of the Bank of England by seven months. He was due to leave the Bank in June 2019, but will now remain until end January 2020. Philip Hammond, the Chancellor, stated that the move was in order to “support a smooth exit of the UK from the EU”.
At its December 2018 policy meeting, the European Central Bank (ECB) left its main interest rate unchanged at 0.0%. It also confirmed that new purchases of assets under its quantitative easing programme would end in December 2018. Under the scheme, the ECB now owns assets – mostly government bonds of Eurozone countries – worth €2.6 trillion.
At its two-day policy meeting ending on 18 December, the Federal Reserve raised interest rates by 0.25%-points to 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. Further rate rises are expected in 2019.