Interest Rates and Monetary Policy: Data on interest rates from the UK, eurozone and the US; a summary of the Bank of England’s and international, quantitative easing policy.

Major central banks around the world have introduced emergency measures in response to the coronavirus pandemic.

UK (Bank of England)

On 7 May, the Bank of England’s Monetary Policy Committee (MPC) left interest rates unchanged at 0.1% and its bond-buying programme (known as quantitative easing, QE) was maintained at £645bn. In its Monetary Policy Report, the Bank forecast GDP to fall by 3% in Q1 2020, compared with the previous quarter, and then decline a further 25% in Q2. The unemployment rate is projected to rise to 9% in Q2.

UK interest rates

In March the Bank announced a series of emergency measures in response to Covid-19.

On 19 March, the MPC cut interest rates from 0.25% to 0.1%, the lowest they have ever been. It also announced a £200bn expansion of QE, in order to support the economy and the functioning of the bond market.

Previously, on 17 March the Government announced the creation of a lending facility run by the Bank of England that will provide loans to larger businesses. The Chancellor said the government would guarantee this lending, up to £330bn. Other measures were also announced.

On 11 March, the MPC cut interest rates by 0.5 percentage points. The MPC also announced the introduction of a number of schemes designed to provide cheap loans to banks so they have additional capacity to lend to businesses. Further information on these 11 March measures is available in the Commons Library Insight: “Budget 2020: Measures to limit the economic impact of coronavirus”. Also see Library briefing, Coronavirus: Effect on the economy and public finances.

Andrew Bailey, formerly Chief Executive of the Financial Conduct Authority, became Governor of the Bank of England on 16 March 2020. He replaced Mark Carney, who had been Governor since 2013.

United States (Federal Reserve)

Responding to the economic impact of the coronavirus outbreak, the Federal Reserve had by 15 March cut interest rates to a range of 0-0.25% from 1.5%-1.75% at the beginning of March. On 23 March, the Fed announced a wide range of measures designed to support the economy. This includes buying debt from the government, corporations and purchasing other securities (such as those backed by mortgages, student loans and other assets). The Fed pledged to buy government debt “in the amounts needed”, with no upper limit. A new loan facility to small- and medium-sized companies was also launched. On 29 April, the US Federal Reserve left interest rates unchanged at a range of 0-0.25%.

Eurozone (European Central Bank)

In an emergency move on 18 March, the European Central Bank (ECB) launched a new €750bn programme of bond purchases – on top of the €120bn announced on 12 March – and said there were “no limits” on its commitment to the euro, in response to the Covid-19 outbreak. On 30 April, the ECB left its main interest rates unchanged at 0.0% and -0.5% (for overnight deposits from banks). The ECB made additional cheap loans available to banks to encourage them to lend to businesses.