The Bank of England cut interest rates to all-time low of 0.5% in 2009 in an emergency response to the global financial crisis

This article is more than 5 years old

This article is more than 5 years old

UK interest rates have been on hold at an all-time low of 0.5% for six years after Bank of England policymakers voted for no change at their March meeting.

It was at their March 2009 meeting that the Bank’s monetary policy committee decided emergency measures were required to address extreme circumstances.

At that point, they lowered rates from 1% to 0.5% and in another unprecedented move for the then 315-year old institution, pushed the button on quantitative easing.

US investment bank Lehman Brothers had collapsed six months earlier with disastrous consequences. Money markets had frozen, and no one fully understood the scale of the crisis that was hurtling head-on towards the global economy.

By March 2009 the UK was in recession.

Under the then governor Sir Mervyn King, the Bank initially pumped £75bn of new money into the financial system by buying government bonds in an attempt to limit the worst effects of the crisis.

QE was ultimately expanded to become a £375bn programme, which was also left unchanged by the MPC at its Thursday meeting.

Philip Shaw, economist at Investec, said: “On the sixth anniversary of the introduction of QE and near-zero interest rates, the MPC left policy unchanged at this month’s meeting.

“While of course it is possible that our medium-term forecasts are blown off course, our central view remains that the committee will begin raising the Bank rate in November this year, about three months earlier than currently factored into the yield curve.”

Any other move would have been major shock to the markets, despite the fact that six years on the emergency is over. Britain is out of recession, unemployment is falling, and the economy is growing at an annual rate of close to 3%.

But with inflation at a record low of 0.3%, wage growth weak, and some parts of the economy as yet to regain pre-crisis levels, the pressure is off the governor, Mark Carney, to raise rates yet.

Carney has, however, made it clear that as the economy begins to get back on its feet – barring a huge economic shock – the next move in monetary policy will be a rate rise.



The question is when? With inflation expected to remain well below the 2% target in the short term, we could well be talking about the seventh anniversary of historically low rates come March 2016.