monetary policy of uk

8/6/2019 Monetary Policy of UK

1/15

Lalith Pothuri


2/15

Monetary policy is the process by which the monetaryauthority of a country controls the supply of money.

The actions of a central bank, currency board or otherregulatory committee that determine the size and rate of

growth of the money supply, which in turn affects interest rates.It is maintained through actions such as increasing the interestrate or changing the amount of money banks need to keep inthe vault (bank reserves).

It targets a rate of interest for the purpose of promoting

economic growth and stability.


3/15

The Bank of England is the central bank of the United Kingdom.It is also known as the 'Old Lady' of Threadneedle Street.

The Bank was founded in 1694, nationalised on 1 March 1946,and gained independence in 1997.

The Bank has two core purposes - monetary stability andfinancial stability.

It is the one which makes the monetary policy in UK.

It has got the responsibility of making monetary policy since1997


4/15

One of the Bank of England's two core purposes is monetarystability.

Monetary Stability is to maintain low inflation and confidencein the currency.

It is directed for providing a non-inflationary economic growth.It usually operates through influencing the price at whichmoney is lent the interest rate.

Stable prices are defined by the Government's inflation targeti.e. 2%.


5/15

The main aim

of monetarypolicy is tohelp keepmacroeconomic stability in

the economyand also tomaintain thevalue ofmoney i.e.

achieve pricestability


6/15

Interest rates are set by the Banks Monetary PolicyCommittee.

The MPC sets an interest rate it judges will enable the inflationtarget to be met.

The MPC meets every month to set the interest rate.

The Committee has to explain its actions regularly toparliamentary committees.

MPC members also speak to audiences throughout thecountry, explaining the MPC's policy decisions and thinking.


7/15

9 rs

v r r

D ti s

a k x c tiv ir ct rs

g vt a i t rs


8/15


9/15

When making decisions on whether or not to change interest rates, the

monetary policy committee will consider many economic factors

Economic conditions in the UK economy

Trends and fluctuations in the European and global economy

This involves a detailed look at what is happening and what it might mean for

inflation

The MPC announce

changes in IR on the

first Thursday of every

month at 12 noon!


10/15

When the ank f England changes the fficial interest rate itis attempting t infl ence the verall level fexpendit re intheec nomy.

When the amount ofmoney spent grows more quickly thanthe volumeofoutput produced, inflation is the result. In thisway, changes in interest rates areused to control inflation.


11/15


12/15

Some factors may dampen the impact of rate changes:

( ) ortgage interest rates donot always follow ase ratechange

( ) any home-owners areon fixed ratemortgages

(3) eople in rentedproperty seenodirect effects fromchanges

( ) redit-card lendersmay not change rates immediately


13/15

(5) If businesses are operating with spare capacity, a fallin rates will not necessarily lead to higher planned capitalinvestment

(6) Many sources of funding for capital spending (e.g.loans and debentures) are at fixed rates of interest

(7) Lower interest rates causes a fall in the effectivedisposable income of millions of people with net savings


14/15

1.www.wikipedia.com

2.www.hm-treasury.gov.uk

.www.bankofengland.com


15/15

monetary policy of uk

Documents