Bank of England Historical interest rates
Britain has form when it comes to low interest rates. It is now five years since Threadneedle Street’s monetary policy committee cut the cost of borrowing to 0.5% – the lowest it had been since the Bank of England was founded in 1694.
But Mark Carney and his eight colleagues have a long way to go before they can beat the period between 1932 and 1951 – which straddled the Jarrow march, the abdication of Edward VIII, the second world war and the founding of the NHS – when bank rate remained remarkably fixed.
Interest rates stayed at 2% for 19 years, apart from a brief increase to 4% as a confidence-raising measure on the outbreak of the war. But by October 1939, bank rate was back to 2%, where it remained until Clement Attlee was replaced by Sir Winston Churchill as prime minister in the autumn of 1951.
As today, the long period of low interest rates was seen as the antidote to a deep and prolonged slump. As now, the impact was felt in the housing market, although in the 1930s cheap money led to a building boom that spawned the classic suburban semi, rather than to rising property prices.
But in the modern era, bank rate has tended to be a lot higher. The post-war peak came in late 1979, when the monetarist policies pursued by Margaret Thatcher’s government resulted in official interest rates being raised to 17%. On Black Wednesday – September 16 1992 – when George Soros and other speculators drove the UK out of the European exchange rate mechanism, the government’s vain rearguard action involved an increase from 10% to 12% in the morning, and in the afternoon a pledge to raise them again to 15%.
By the time Gordon Brown granted the Bank independence in 1997, bank rate, at 6.25%, was back to levels seen when the Bank was created. The “new normal” in what Mervyn King called the NICE decade (non-inflationary continual expansion) was for official rates to fluctuate from 7.5% at the top to 3.75% at the bottom. Rates tended to be moved incrementally, by 0.25 percentage points at a time.
That was then. The new “new normal” since the collapse of Lehman Brothers in September 2008 has been for the Bank to provide an unprecedented amount of stimulus, not only through bank rate but through buying £375bn of government bonds and by special schemes to encourage credit growth such as Funding for Lending.
The City expects the sixth anniversary of the 0.5% rate to pass before the Bank starts raising rates, and that they will peak at 2.5%-3%. Carney has certainly signalled that he wants them to remain at 0.5% for the foreseeable future.
Those two decades of stability in the 20th century have nothing, however, on the country’s record period of unchanged rates. In 1719, the Bank raised rates from 4% to 5%. In 1822 it had second thoughts, and brought them back down to 4% again.