UK Interest Rates
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The incessant economic crisis forced policy makers to cut down the UK interest rates drastically in 2009. Interest rates in the UK had fallen as low as 2% in 2009. This is the lowest point that it reached in the history of the Bank of England. While the rate of interest was cut dramatically, the bank was under the pressure of cutting down the borrowing costs in order to relieve the faltering economy.[br]
UK Interest Rates: History
The UK interest rates had fallen very low in October 1939, right after the outbreak of the World War II. The interest rates did not revive till November 1951, when the UK government raised them up to 2.5%.
Here are some facts to remember about the UK interest rates during the period:
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The rates stayed at 2% through the 1930s, despite the Great Depression.
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In the 1950s, the interest rates escalated.
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In 1973, the OPEC’s oil crisis forced the rates up to 13%.
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The 15% mark reached three years later.
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The UK interest rates soared during the initial days of the Thatcher government. In 1978, due to uncontrolled inflation and soaring wages, the interest rates were raised to 17%.
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The interest rates stayed at 17% until July 1980. The rates fell to 10% only in 1983.[br]
UK Interest Rates and LIBOR Rates
The London Interbank Offered Rate is a regular reference rate which is based on the UK interest rates.
In 2007, when the sub prime crisis began, it posed new challenges for policymakers in setting the UK interest rates in a way that would help to stabilize the economy. There has been a wide difference between the medium-term interest (3-month Libor rate) and short-term base rate as determined by the policymakers. The aggregate demand is more reactive to the Libor rate in comparison to the base rate because the Libor rate represents the benchmark.
The Libor rate influences the rate of interest at which the private sector borrows. A changing relationship between the base and the Libor rates implies a different level of aggregate demand as well as different levels of inflation and production.
