The Bank of England has announced that interest rates are to be kept at 0.5% for the time being, only the 5th month that the rate hasn’t changed since last September. This stall in changing the interest rates highlights how highly the Bank of England is prioritising its attempts to encourage banks to start lending again, therefore boosting credit and raising the ‘nominal spending’ (the cash value of spending) in the economy.
The Bank of England has also injected a further £50bn of fresh money into the economy this month, therefore meaning that £175bn has now been spent on quantitative easing. In a statement, they said that the UK recession "appears to have been deeper than previously thought". Similarly, the European Central Bank (ECB) has kept its interest rates in the eurozone (i.e. those countries who use the Euro) at a record low of 1% for the 3rd month in a row, after it was cut from 1.25% in May, its 7th cut since last October, in an attempt to help restore economic growth in the eurozone.
You can watch a news broadcast on this topic below:
Thursday, 6 August 2009
Interest rates held at 0.5% for a 5th month
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Thursday, 9 July 2009
Interest rates held at 0.5% for a 4th month
The Bank of England has announced that interest rates are to be kept at 0.5% for the time being, only the 4th month that the rate hasn’t changed since last September. This stall in changing the interest rates highlights how highly the Bank of England is prioritising its attempts to encourage banks to start lending again, therefore boosting credit and raising the ‘nominal spending’ (the cash value of spending) in the economy. The Bank of England has not injected any fresh money into the economy this month as part of its quantitative easing process, as it wants to allow itself to pause and assess economic data to measure how successful the quantitative easing is going.
Ilona Krohn, principal economic advisor at Greater Manchester Chamber of Commerce, has supported the decision to hold interest rates: “The decision to hold interest rates was widely expected. The pros and cons of quantitative easing are still a major topic of debate among world economists. For the time being, it is important that the Bank of England maintains a transparent and consistent policy in order to restore confidence in the financial system and assist businesses with their forward planning."
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Thursday, 4 June 2009
Interest rates held at 0.5% for a 3rd month
The Bank of England has announced that interest rates are to be kept at 0.5% for the time being, only the 3rd month that the rate hasn’t changed since last September. This stall in changing the interest rates highlights how highly the Bank of England is prioritising its attempts to encourage banks to start lending again, therefore boosting credit and raising the ‘nominal spending’ (the cash value of spending) in the economy. The Bank of England has not injected any fresh money into the economy this month, but it is predicted that £125bn will have been spent on the quantitative easing process by the end of July. A closely-watched survey on the service sector released earlier this week suggested that the recovery may be coming faster than expected. Similarly, the European Central Bank (ECB) has kept its interest rates in the eurozone (i.e. those countries who use the Euro) at a record low of 1% for the 2nd month in a row, after it was cut from 1.25% last month, its 7th cut since last October, in an attempt to help restore economic growth in the eurozone.
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Thursday, 7 May 2009
Interest rates held at 0.5% again
The Bank of England has announced that interest rates are to be kept at 0.5% for the time being, only the 2nd month that the rate hasn’t changed since last September. This stall in changing the interest rates highlights how highly the Bank of England is prioritising its attempts to encourage banks to start lending again, therefore boosting credit and raising the ‘nominal spending’ (the cash value of spending) in the economy. The Bank of England also reported that some £54bn has already been injected into the economy, with this figure expected to increase to £75bn by the end of June, with overall spending to be extended to £125bn instead of the expected £150bn, as the Bank continues with its ‘quantitative easing’ lending process. Leading economists believe that this smaller extension suggests that, “the recovery is going to plan". Similarly, the European Central Bank (ECB) has cut interest rates in the eurozone (i.e. those countries who use the Euro) to a record low of 1%, down from 1.25%, its 7th cut since last October, in an attempt to help restore economic growth in the eurozone.
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Tuesday, 14 April 2009
Interest rates stay put at 0.5%
After being reduced to 0.5% in March, the Bank of England has announced that interest rates are to be kept at 0.5% for the time being, the first time the rate hasn’t changed since last September. The Bank of England also reported that some £26.4bn has already been injected into the economy, as the Bank continues with its ‘quantitative easing’ lending process. This stall in changing the interest rates highlights how highly the Bank of England is prioritising its attempts to encourage banks to start lending again, therefore boosting credit and raising the ‘nominal spending’ (the cash value of spending) in the economy.
You can view a news broadcast of this news below
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Thursday, 5 March 2009
Interest rates reduced to 0.5% with £75 billion being pumped into the economy
At midday today the Bank of England announced that interest rates were to be lowered from 1% to 0.5%, the 6th reduction in interest rates since October 2008 (see a breakdown of these reductions below). The Bank of England added that it is going to pump £75 billion into the British economy in an attempt to boost bank lending, through a policy called ‘quantitative easing’. Unsure what ‘quantitative easing’ is? Read on to find out.
When interest rates are lowered people are encouraged to spend money not save it. However when interest rates can go no lower, as became the case today, money has to then be pumped directly into the economy to encourage people to lend and spend. Japan undertook this policy in 2001, but economists still question whether this was successful or not. This policy is similar or dissimilar (depending on your views) to ‘money printing’, which occurred in 1920s Weimar Germany and modern-day Zimbabwe, and inevitably led to hyperinflation. This process electronically, not physically, credits the money to banks’ accounts. Still confused? Click here for a BBC video explaining it.
Quantitative easing can be broken down into 7 stages:
- The Bank creates new money electronically in its accounts.
- The Bank buys bonds (companies’ IOUs) and gilts (Government IOUs) from commercial banks.
- The value of the bonds and gilts bought is now credited to banks that sold them.
- The commercial banks can make new loans against the increased funding.
- Extra lending boosts cash and credit flowing in the economy.
- Extra demand for bonds and gilts from the Bank drives down interest rates for business and consumer borrowers.
- Flows of extra and cheaper money stimulate growth.
Here is a breakdown of the 6 interest rate reductions (shown in a chart here) since October 2008:
- October 2008: Interest rates cut by 0.5% from 5% to 4.5%
- November 2008: Interest rates cut by 1.5% from 4.5% to 3%
- December 2008: Interest rates cut by 1% from 3% to 2%
- January 2009: Interest rates cut by 0.5% from 2% to 1.5%
- February 2009: Interest rates cut by 0.5% from 1.5% to 1%
- March 2009: Interest rates cut by 0.5% from 1% to 0.5%
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