How ultra-low interest rates became the new normal

The Bank of England reduced rates to near zero in the aftermath of the 2008 financial crisis and they have remained there ever since. 

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The Bank of England announced today that interest rates would be held at a record low of 0.1 per cent following its monthly Monetary Policy Committee meeting.

Despite dissent from outgoing chief economist Andy Haldane, who warned in an essay for the New Statesman of the danger of “the tiger of inflation”, the bank chose not to increase the cost of borrowing. 

The Bank of England interest rate has been below 1 per cent since 2009
Bank of England interest rate, May 1997 to June 2021

“This is the most ­dangerous moment for monetary policy since inflation-targeting was first introduced into the UK in 1992,” Haldane wrote.

In the two decades since the bank was granted operational independence in May 1997, interest rates fluctuated considerably between 3 and 8 per cent. But this changed in November 2008 when in the wake of the financial crisis, the bank reduced rates from 4.5 per cent to 3 per cent, the largest cut in its history. A month later, rates were cut by another percentage point; by March they were down to 0.5 per cent.

In the 12 years since, the interest rate has barely changed from its near-zero position. Rates were reduced to just 0.25 per cent to protect the economy in the aftermath of the 2016 Brexit vote and were subsequently increased to 0.75 per cent in August 2018. But in March 2020, rates were slashed first to 0.25 per cent and then to an all-time low of 0.1 per cent to mitigate the economic damage of Covid-19.

[See also: Exclusive: Bank of England’s chief economist warns of a “dangerous moment” for UK economy]

Katharine Swindells is a New Statesman Media Group data journalist. 

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