Role of the Bank of England – MPC

Question 1

What is the role of the Bank of England’s Monetary Policy Committee (MPC)?

Answer 1

The MPC sets the base interest rate (currently reviewed monthly) to achieve the government’s inflation target of 2% (CPI).

🧰 Tools the MPC uses:

Interest rates (main tool)

Quantitative Easing (in special cases)

Forward guidance (to influence expectations)

📈 If inflation is too high: Raise interest rates → reduces demand.
📉 If inflation is too low or growth is slow: Lower interest rates → encourages spending.

🎯 The MPC considers inflation, growth, unemployment, and external shocks when setting rates.

📝 Exam angle:

“Evaluate the effectiveness of interest rate policy in achieving macroeconomic stability.”