During the 2010s, interest rates were relatively unregarded. The official bank rate was at a historically low level and varied by very little from 2009 onwards. However, as inflation began to accelerate in 2022, interest rates began to creep up, and became headline news. Let’s explore why this should be.
At the heart of things is the official bank rate, set by the Monetary Policy Committee (MPC) of the Bank of England at its regular meetings. This has been going on since 1997, when one of the first measures introduced by the incoming Labour government was to delegate responsibility for monetary policy to the Bank of England. The underlying intention of this step was to improve the credibility of macroeconomic policy, by providing the bank with a target for inflation. If the Bank of England had independent control to meet the target by using monetary policy, the government’s hands would be tied, in the sense that it would not be able to adopt populist policies to influence the electorate, thus causing damage to the economy in the longer term.
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