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Interest Rates and Monetary Policy: Key Economic Indicators

Published Thursday, August 2, 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 unanimously to raise interest rates to 0.75% from 0.5% at its August policy meeting. This is the highest they have been in almost a decade.


The fall in the value of the pound since early 2016 and, particularly, following the Brexit vote in June 2016, pushed up inflation to around 3% in the second half of 2017 – above the MPC’s 2% target. It has since eased to 2.4% in June. Although economic growth was subdued in the first quarter of the year, the MPC states that recent data appears to confirm that this dip was temporary, with momentum recovering in the second quarter. Given these developments, the MPC determined that a 0.25% point increase was warranted, but stated that any further increases are “likely to be at a gradual pace and to a limited extent”.

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 July 2018 policy meeting, the European Central Bank (ECB) left its main interest rate unchanged at 0.0%. In June, it announced changes to its quantitative easing programme: ECB asset purchases (mostly government bonds of Eurozone countries) at a rate of €30bn per month would continue until September 2018, but would then be reduced to €15bn until the end of the year, when new purchases would end.

United States (Federal Reserve)

At its two-day policy meeting ending on 13 June, the US Federal Reserve raised interest rates by 0.25% points at a range of 1.75-2.00%. This range was maintained at its policy meeting ending on 1 August. Rates have been increased gradually from 0-0.25% since December 2015 against a backdrop of jobs growth and steady economic growth. More rates rises are expected later this year.


Commons Briefing papers SN02802

Author: Daniel Harari

Topics: Economic policy, Economic situation

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