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Interest Rates and Monetary Policy: Key Economic Indicators

Published Friday, February 9, 2018

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 historic lows 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 9-0 to leave interest rates unchanged at 0.5% at its February policy meeting. In November, the MPC raised interest rates for the first interest rate increase in more than a decade. Following the MPC’s February meeting, many observers now think there is a good chance that rates will next be raised in May.

 UK interest rates

The fall in the value of the pound since early 2016 and, particularly, following the Brexit vote in June 2016, has pushed up inflation to around 3% – above the MPC’s 2% target. Despite relatively subdued economic growth in recent quarters, the MPC believes that there is little spare capacity in the economy. This means that to bring inflation down to its target, the MPC has stated that more rate increases in 2018 are likely.

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.

Eurozone (European Central Bank)

At its January 2018 policy meeting, the European Central Bank left its main interest rate unchanged at 0.0%. It also left unchanged its quantitative easing programme – whereby it purchases assets (mostly government bonds of Eurozone countries) in an attempt to stimulate the economy – at €30 billion per month until September 2018, or longer “if necessary”.

United States (Federal Reserve)

At its two-day policy meeting ending on 31 January left interest rates unchanged at 1.25-1.50%Rates have been increased gradually from 0-0.25% since December 2015 against a backdrop of jobs growth and steady economic growth.

 

Commons Briefing papers SN02802

Author: Daniel Harari

Topics: Economic policy, Economic situation

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