chapter  1
Monetary policy
Pages 24

The financial crash of 2008/2009 has changed the parameters of discussion of monetary policy. Monetary policy is the government policy relating to the quantity of money in the economy, the rate of interest and the exchange rate. In the UK, monetary policy has been the responsibility of the Bank of England since 1997 when it was given independence by the then Labour government. The decision to alter interest rates is not made by just one person. In the UK, the Monetary Policy Committee (MPC) is involved. There are various problems facing the MPC when making their assessment of the state of the economy at any one given time. Economic data can be very volatile from month to month. Judgements have to be made about how much weight to attach to the data provided. The MPC said 'Despite the sharp fall in unemployment, there remains scope to absorb spare capacity further before raising Bank Rate'.