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Inflation and interest rates

Everyone knows that the Bank of England has the power to change interest rates. It normally does this by influencing the banks to alter their base rates. This is the rate of interest used by commercial banks as the basis for their lending – a borrower may have a deal to borrow at say, two percentage points over the base rate. The central banks (regulatory organisations that control the credit system – e.g. Bank of England, European Central Bank and The Federal Reserve in the USA) may also intervene in those financial markets focused on short-term lending (this is large-scale lending through the financial system).

As we found out in the great recession following 2008, central banks can also opt for quantitative easing ...