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Major central banks around the world tightened monetary policy in response to rising inflation, initially caused by higher goods and energy prices, as well as bottlenecks in global supply chains.

UK (Bank of England)

On 20 June, the Bank of England’s Monetary Policy Committee (MPC) announced it had left interest rates unchanged at 5.25% for the seventh meeting in a row. Rates were increased from 0.1% in December 2021 to 5.25% in August 2023. The MPC vote in June was 7 members in favour of unchanged rates and 2 in favour of cutting rates by 0.25 of a %-point.

The MPC’s cycle of rate increases came in response to high inflation, which peaked at 11.1% in October 2022. Since then, inflation has fallen and was 2.0% in May 2024 – equal to the MPC’s target. The Bank of England expects the inflation rate to “increase slightly” in the second half of 2024. Financial markets expect the MPC to cut rates later this year.

The results of the next scheduled MPC meeting will be announced on 1 August.

UK interest rates rose from 0.1% in December 2021 to 5.25% in August 2023, where they have since remained

The MPC has started to reduce the size of its asset purchase – or quantitative easing, QE – programme from its recent peak value of £895bn to £693bn on 10 July 2024. It is doing this by letting some of the government bonds it holds mature and by actively selling some of the bonds it holds to the market.

QE consists of the Bank creating new money electronically (as central bank reserves) and then using it to purchase financial assets, mostly government bonds.

In March 2020 the Bank introduced measures in response to Covid-19. Interest rates were cut to 0.1% – the lowest they have ever been. They remained at this level until December 2021. The MPC also expanded its quantitative easing (QE) programme by £450bn in 2020 and 2021, taking the total value of assets it owned to a peak of £895bn. For more, see section 4.2 of the Library briefing paper, Coronavirus: Economic impact.

United States (Federal Reserve)

Interest rates were left unchanged at a range of 5.25% to 5.50% by the Fed at its policy meeting ending 12 June 2024. The Fed said that prospects of the number of rate cuts this year had diminished compared to previous expectations. Inflation remains above 3%, higher than the Fed’s 2% target. The Fed slowed the pace it reduces the assets it holds in its Quantitative Easing programme from $95bn to $60bn per month

Responding to the Covid-19 pandemic, the Fed had by 15 March 2020 cut interest rates to close to 0% from 1.5%‑1.75% prior to the pandemic. On 23 March 2020, the Fed announced a wide range of measures designed to support the economy. This included buying debt from the government, corporations and purchasing other securities (such as those backed by mortgages and other assets). The Fed began to raise rates again in March 2022, taking them from 0-0.25% to 5.25-5.50% in July 2023. 

Eurozone (European Central Bank)

At its 6 June 2024 meeting, the ECB cut its main interest rates by 0.25 percentage points, including lowering the deposit rate from 4.00% to 3.75%. This was the ECB’s first rate cut since they raised rates by 4.5 percentage points between July 2022 to September 2023. The ECB said that the annual inflation rate in the Eurozone had slowed, but was forecast to stay above its 2% target.

The ECB started to unwind one of its main quantitative easing programmes since March 2023, with reductions to the overall size of its pandemic-related QE programme coming in the second half of 2024.

The ECB launched its pandemic response on 12 March 2020 and expanded it significantly on 18 March and 4 June. The ECB has also made cheap loans available to banks to encourage them to lend to businesses.

In July 2022, the ECB announced the creation of a new bond purchase programme, the Transmission Protection Instrument (TPI). The TPI is designed to be used, if needed, to lower government borrowing costs in individual countries, if these costs are rising due to “unwarranted, disorderly market dynamics”. 


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