Monthly bank rate in the UK 2012-2024
The official bank base interest rate in the United Kingdom was raised five times in 2022 in response to inflation. In a bid to minimize the economic effects of the COVID-19 pandemic, the Bank of England cut the official bank base rate in March 2020 to a record low of 0.1 percent. This historic low came just one week after the Bank of England cut rates from 0.75 percent to 0.25 percent in a bid to prevent mass job cuts in the United Kingdom. It remained at 0.1 percent until December 2021 and was increased to one percent in May 2022 and to 2.25 percent in October 2022. After that, the bank rate increased almost on a monthly basis, reaching 5.25 percent in August 2023.
Why do central banks adjust interest rates?
Central banks adjust interest rates primarily to manage economic stability and control inflation. By raising interest rates, central banks aim to cool down an overheated economy, curbing excessive spending and borrowing, which helps to prevent runaway inflation. Conversely, by lowering interest rates, they encourage borrowing and investment, stimulating economic growth during periods of economic slowdown or recession. This dual approach allows central banks to maintain a balance between promoting growth and controlling inflation, ensuring long-term economic stability. Additionally, adjusting interest rates can influence currency values, impacting international trade and investment flows, further underscoring their critical role in a nation's economic health.
Recent interest rate trends
Between 2021 and 2024, most advanced and emerging economies experienced a period of regular interest rate hikes as central banks sought to combat rising inflation and deteriorating economic conditions. Persistent supply chain disruptions, high energy prices, and robust demand pressures led to significant inflationary trends, prompting central banks to raise rates to temper spending and borrowing. However, in 2024, the European Central Bank (ECB) was among the first to reverse this trend by cutting interest rates, signaling a shift in monetary policy to address the growing economic slowdown and to support growth.