Interest rates are a key factor in the macroeconomic performance of any economy. In the UK, interest rates have a significant impact on the performance of the economy, and have been used as a tool to manage economic activity for decades. This article will provide an overview of the historical impact of UK interest rates on macroeconomic performance, and discuss how these changes have affected the country’s economy over time.
The Bank of England is responsible for setting the UK’s interest rate. This rate is known as the Bank Rate, and is used to influence the cost of borrowing money. When the Bank Rate is low, it encourages people to borrow money, which can lead to increased economic activity. Conversely, when the Bank Rate is high, it discourages borrowing and can lead to slower economic growth.
The Bank of England has used interest rates to manage economic activity since the early 20th century. During this period, the Bank Rate was used to control inflation and stimulate economic growth. In the 1950s and 1960s, the Bank Rate was kept relatively low to encourage borrowing and stimulate economic growth. This period saw a period of strong economic growth in the UK, with GDP increasing by an average of 4.3% per year between 1950 and 1965.
In the 1970s and 1980s, the Bank of England began to use higher interest rates to control inflation. During this period, the Bank Rate was raised to as high as 17%, leading to a sharp decrease in economic activity. This period saw a period of slow economic growth, with GDP increasing by an average of just 1.7% per year between 1970 and 1985.
Since the 1990s, the Bank of England has used a more flexible approach to managing interest rates. The Bank Rate has been kept relatively low since then, with a range of 0.5% to 0.75% since 2009. This period has seen a period of strong economic growth in the UK, with GDP increasing by an average of 2.2% per year between 1990 and 2019.
Overall, UK interest rates have had a significant impact on macroeconomic performance over the past century. Low interest rates have encouraged borrowing and stimulated economic growth, while high interest rates have discouraged borrowing and led to slower economic growth. The Bank of England has used interest rates as a tool to manage economic activity over time, and this has had a major impact on the performance of the UK economy.