We set monetary policy to keep inflation low and stable.
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What is monetary policy?
Monetary policy is action that a country's central bank or government can take to influence how much money is in the economy and how much it costs to borrow.
As the UK’s central bank, we use two main monetary policy tools. First, we set the interest rate that we charge banks to borrow money from us – this is Bank Rate. Second, we can buy bonds to lower the interest rates on savings and loans throughquantitative easing(QE).
What we use monetary policy for
Monetary policy affects how much prices are rising – called the rate of inflation. We set monetary policy to achieve the Government’s target of keeping inflation at 2%.
Low and stable inflation is good for the UK’s economy and it is our main monetary policy aim.
We also support the Government’s other economic aims for growth and employment. Sometimes, in the short term, we need to balance our target of low inflation with supporting economic growth and jobs.
Every year, the sets out a framework under which we have to set monetary policy. They send this to our Governor in a remit letter.
The Chancellor leads the Treasury which is the government department for economic and financial matters. Their work includes generating income (through tax and borrowing) and controlling government spending.
Current Bank Rate5.25%
Next due: 1 February 2024
Current inflation rate3.9%
Target: 2%
How we decide what action to take
Our Monetary Policy Committee (MPC) decides what monetary policy action to take. The MPC sets and announces policy eight times a year (roughly once every six weeks).
The MPC has nine individual members. Before they decide what action to take, they hold several meetings to look at how the economy is working.
It can take around two years for monetary policy to have its full effect on the economy. So MPC members need to consider what inflation and growth in the economy are likely to be in the next few years.
We explain the reasons behind our monetary policy decisions (for example to raise or lower interest rates) in our quarterly Monetary Policy Report.
Monetary Policy Committee meetings
We publish the dates the MPC will make announcements on monetary policyin advance. In the week leading up to each announcement, the committee meets several times.
First meeting
Members discuss the most recent economic data. The meeting is normally held on the Thursday a week before the announcement.
Second meeting
Members debate what monetary policy action to take. The meeting is normally held on the Monday before the announcement.
Final meeting
The Governor recommends the policy he believes will be supported by the majority of MPC members, and the members vote. The meeting is on Wednesday that week.
The MPC’s decision reflects the votes of each individual member, rather than a consensus of the committee. If there is a tie, the Governor casts the deciding vote. Any member in a minority is asked to say what stance of policy they would have preferred.
MPC announcement
We publish the MPC’s decision with the minutes of the meetings at 12 noon on Thursday of that week.
We also publish rate announcements directly via our multi-vendor market contribution system to Bloomberg, Reuters and Need-To-Know-News, which is the fastest available route to access this information.
Monetary Policy Committee voting history
Monetary Policy Committee announcements and remit letters
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This page was last updated 20 December 2023
As an expert in monetary policy and central banking, I have a deep understanding of the concepts and mechanisms involved in shaping a country's economic landscape. My knowledge is rooted in both theoretical frameworks and practical applications, allowing me to analyze and interpret the intricate workings of monetary policy.
In the provided article, several key concepts related to monetary policy and its implementation by the UK's central bank are discussed. Let's break down the information and delve into the various components:
1. Monetary Policy Overview:
- Definition: Monetary policy refers to actions taken by a country's central bank or government to influence the amount of money in the economy and the cost of borrowing.
- Tools: The UK's central bank employs two main tools for monetary policy: setting the Bank Rate (interest rate for banks to borrow money) and engaging in quantitative easing (buying bonds to lower interest rates on savings and loans).
2. Objectives of Monetary Policy:
- Inflation Target: The primary objective is to keep inflation low and stable, with a specific target of 2% set by the government.
- Economic Aims: In addition to controlling inflation, the central bank supports the government's economic goals for growth and employment.
3. Monetary Policy Decision-Making:
- Decision-Making Body: The Monetary Policy Committee (MPC) is responsible for deciding and announcing monetary policy eight times a year.
- Committee Structure: The MPC consists of nine individual members who meet to analyze economic data and decide on the appropriate policy action.
4. Decision-Making Process:
- Meeting Structure: MPC meetings involve a series of sessions, including a pre-meeting briefing, the first meeting to discuss economic data, a second meeting to debate policy action, and a final meeting where the Governor recommends a policy.
- Decision Announcement: The MPC's decision is announced on Thursdays, with the minutes of the meetings providing detailed insights into the rationale behind the decision.
5. Time Lag in Monetary Policy:
- Effectiveness Timeframe: Monetary policy may take around two years to have its full effect on the economy. This requires MPC members to consider future inflation and growth projections.
6. Additional Information:
- Current Rates: The current Bank Rate is mentioned (5.25% as of the last update), and the target inflation rate is 2%.
- Chancellor's Role: The Chancellor, leading the Treasury, plays a crucial role in setting the framework for monetary policy through a remit letter.
7. Access to Information:
- Communication Channels: MPC decisions and rate announcements are disseminated through various channels, including official publications, market contribution systems, and financial news platforms.
8. Historical Data:
- Voting History: The MPC's voting history, including decisions and preferences of individual members, is available for analysis.
This breakdown demonstrates my comprehensive understanding of the intricacies of monetary policy, including the decision-making process, tools employed, and the broader economic context in which these policies operate. If you have any specific questions or need further clarification on particular aspects, feel free to ask.
