The United Kingdom of Great Britain

Monetary Policy

Monetary policy is changes in things like interest rates and the money supply. These changes are made by the central bank of the United Kingdom. This bank is called "The Bank of England." This is a lot like The Fed of the United States. This section will show what The Bank of England is doing to fight the recession. It will also have an illustrated diagram showing how this should affect the economy. The policy is from 2009 and has not sense changed.

In an article dated, March 5th, 2009 the Bank of England announced that the interest rates of what the bank must reserve has hit an all time low of .5%. This very appealing to both citizens and banks who are struggling to stay above water in the current economic recession that seems to be hitting most parts of the world. The old rate was 1%, meaning the Bank of England has cut the rates in half. In addition to his interest rate cut the Bank of England announced back in 2009 that they would be starting a new program. The "quantitative easing" program is an official way to say what the article says boldly. " other words printing more cash to get money flowing back into the economy." The basic concept behind the lower interest rate is to push the lenders (aka. banks) to use this additional money supply to boost their lending and borrowing power. The idea behind printing more money is to get more money out into the public so businesses and citizens will spend more and help stimulate the economy. If the people and companies sit on the money and horde it because of a lack of trust in the economy and the country then the stimulus will in fact hurt the country. The article finishes by stating that The Bank of England hopes that this plan to cut the interest rates in half will push an extra 75 billion euros into the economy.

According to an article published on November 4th, 2010 the Bank of England has voted to keep the interest rates at .5% for the coming year. This is still a very good thing as it is still a record low for the United Kingdom. The problem is that in the new article some information about what happened the previous year was revealed. The Bank of England hoped that by cutting the interest rate in half that £75 Billion would be pumped into the economy like oil into an engine of a car. The problem is that in the newest statement it was reported that roughly £25 Billion was pumped into the economy. This is literally 1/3 (33%) of what was expected of the tax cut. Most people are not borrowing at all and keeping their money. This is because no matter how low the interest rates fall people will still not trust in the government and the economy enough to overcome the recession and make them want to borrow money. People who have to borrow are taking their money they save from these low rates and holding onto it because they do not trust the Government either. This ultimately hurts the economy more, sending the people who do not spend into a winding circle of doubt and saving. Those who kept the money could end up being the reason that the amount of money pumped in does not go up. The only thing that can help them now is a change in attitude.