Monetary 2024 stats

• The UK is currently using contractionary monetary policy
• Expansionary monetary policy used during COVID-19

  1. Cut interest rates to 0.1%

  2. Used quantitative easing (£495 billion)

  3. Intentions: Boost AD, increase growth, reduce unemployment, fight recession, prevent deflation
• Banks were initially unwilling to lend at the start of the COVID-19 crisis
• The effectiveness of interest rate cuts was limited as they were already at a very low level
• The large-scale quantitative easing sowed the seeds for high inflation after COVID-19 lockdowns
• Contractionary monetary policy used to tackle high inflation

  1. Raised interest rates from 0.1% to 5.25%

  2. Using quantitative tightening to reduce money supply
• The Bank of England was slow to respond to rising inflation, initially downplaying the threat in summer 2021
• Inflation has come down, but this has been driven more by easing supply-side factors rather than the effectiveness of contractionary monetary policy
• Intentions of contractionary monetary policy

  • Tame higher-than-target inflation rates
• Higher interest rates


  Reduce household debt and promote more saving
• Higher interest rates


  Promote more sustainable lending and borrowing
• Contractionary monetary policy has contributed to stagnating growth and rising unemployment in the UK
• Higher interest rates have negatively impacted indebted households and businesses, with concerns about living standards and potential bankruptcies
• Higher interest rates discourage business investment, which is already weak in the UK due to Brexit
• Higher interest rates contributed to bank failures in early 2023, raising concerns about systemic risk, but strong regulation prevented a wider crisis
• It is still too early to consider cutting interest rates, as core inflation and wage growth remain high, and the priority is to fully win the battle against inflation