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Interest Rates and Monetary Policy: Key Economic Indicators

Published Thursday, September 12, 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 policy meeting ending 31 July (announced on 1 August). Analysts are not expecting any rate change before the scheduled Brexit date of 31 October.

UK interest rate

In its August Inflation Report, the MPC downgraded its forecasts for GDP growth from 1.5% to 1.3% in 2019 and from 1.6% to 1.3% in 2020, citing slowing UK growth and global trade tensions. The Bank’s forecasts assume a smooth Brexit with an orderly transition to new trading arrangements between the UK and EU. In a no-deal scenario it suggested economic growth would be lower.

The MPC noted the “increased uncertainty about the nature of EU withdrawal” and, as a result, the economy could “follow a wide range of paths over coming years”. The monetary policy response to Brexit, the MPC states, will depend on the form it takes.

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 September policy meeting, the European Central Bank (ECB) left its main interest rate unchanged at 0.0% but lowered the deposit rate (the interest rate banks receive on overnight deposits with the ECB) from -0.4% to -0.5%. The ECB also announced its quantitative easing programme would restart in November at a monthly pace of €20bn. New asset purchases had previously been halted in December 2018. The ECB highlighted the weaker economic performance of the Eurozone, risks to the global economy, and lower inflation for its decision to loosen monetary policy.

United States (Federal Reserve)

The Federal Reserve cut interest rates for the first time in over a decade on 31 July. Rates were lowered by 0.25%-points to a range of 2.0-2.25% due to low inflation and weakness in the global economy.

Commons Briefing papers SN02802

Author: Daniel Harari

Topics: Economic policy, Economic situation

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