Monetary Policy: Interest Rates

Monetary policy is the use of interest rates, the money supply, and exchange rates by the central bank to influence macroeconomic objectives. In the UK, monetary policy has been conducted by the Bank of England's Monetary Policy Committee (MPC) since operational independence was granted by Chancellor Gordon Brown in May 1997.

Key Definition: Monetary policy is the manipulation of monetary variables — primarily interest rates and the money supply — by the central bank to control inflation and influence output and employment.

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The Monetary Policy Committee (MPC)

The MPC is a nine-member committee responsible for setting the Bank Rate (base rate) — the interest rate at which the Bank of England lends to commercial banks overnight. The committee meets eight times a year, and decisions are announced at midday on the final day of each meeting.

Composition of the MPC