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Interest Rates and Monetary Policy: Key Economic Indicators

Published Friday, December 20, 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)

On 20 December, the Chancellor announced that Andrew Bailey will become Governor of the Bank of England on 16 March 2020. Mr Bailey, currently Chief Executive of the Financial Conduct Authority, will replace Mark Carney who has been Governor since July 2013.

The Bank of England’s Monetary Policy Committee (MPC) voted 7-2 to leave interest rates unchanged at 0.75% at its December policy meeting (the two dissenting votes were for a 0.25%-point rate cut).

UK interest rates

In its November Monetary Policy Report, (renamed from the Inflation Report) the MPC noted that economic growth in the UK – and abroad – has slowed and that Brexit uncertainty has been high. The MPC expects that with a Brexit deal uncertainty faced by consumers and businesses will fall, providing a boost to the economy. If this does not happen, the MPC has said that it may need to lower interest rates to boost growth.

The MPC’s forecasts are now based on the assumption of a Brexit deal and an orderly transition to a “deep free trade agreement between the UK and EU”.

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 December policy meeting, the European Central Bank (ECB) left its main interest rate unchanged at 0.0%. In September it lowered the deposit rate (the interest rate banks receive on overnight deposits with the ECB) from -0.4% to -0.5%. The ECB restarted its quantitative easing programme in November, purchasing €20bn of assets every month.

United States (Federal Reserve)

The Federal Reserve left interest rates unchanged at a range of 1.5-1.75% at its meeting ending on 11 December. It had cut rates by 0.25%-points at the previous three meetings.

Commons Briefing papers SN02802

Author: Daniel Harari

Topics: Economic policy, Economic situation

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