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Interest Rates and Monetary Policy: Key Economic Indicators

Published Monday, June 6, 2016

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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The Bank of England has left the Base Rate in the UK unchanged at 0.5% since March 2009 – the lowest since the Bank was founded in 1694.

The Governing Council of the European Central Bank (ECB) lowered the main interest rate for the Eurozone to 0.00% and the deposit rate to -0.40% in March 2016.

The US Federal Reserve increased its target range for the federal funds rate to between 0.25-0.5% on 16 December 2015. This is the first increase since 2006. The Fed had previously signalled they would raise rates by the end of 2015.

Quantitative Easing

With little room for further cuts in interest rates, the Bank of England initiated an asset purchase or quantitative easing (QE) programme in March 2009.

From an initial £75bn in March 2009, QE was increased by £125bn (to a total of £200bn) by November 2009. It was further increased as follows: up by £75bn (to £275bn) in October 2011; £50bn (to £325bn) in February 2012 and £50bn in July 2012 to a total of £375bn.

The majority (over 99%) of assets purchased by the Bank of England though QE have been gilts (UK government debt).

On 21 April 2016 the ECB expanded the QE programme established in January. It will now buy €80bn assets (mostly government bonds of Eurozone countries) (up from €60bn in January) each month until at least September 2016.  The ECB has implemented this programme to raise the rate of inflation to its 2% target (inflation was -0.2% in Dec 2014).

The Federal Reserve in the US, has run three programmes of QE since the Great Recession. The first from December 2008 to March 2010 saw the Fed buy $1.75 trillion of mortgage-backed securities and government debt between December 2008 and March 2010. The second programme involved the Fed buying about $600bn in new assets between November 2010 and June 2011. The third programme, so-called QE3, ran from September 2012 to October 2014 and saw the Fed purchasing assets (mortgage debt and government debt) of around $1.6 trillion.

Commons Briefing papers SN02802

Authors: Dominic Webb; Anna Moses

Topics: Economic policy, Economic situation

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