Economic factors: monetary policy

Monetary policy: Controlling the money supply and the rate of interest in order to influence the level of spending and demand in the economy 

Interest rates can be changed more easily and more quickly than the rates of taxation, with decisions about interest rates being made each month by the Bank of England. 

Interest rates and quantitative easing 

Changing interest rates is one of the main tools available to government to control growth in the economy. Lower interest rates encourage consumers and business to spend rather than save and higher interest rates tend to encourage the opposite. However, when interest rates are almost at zero, central banks need to adopt different tactics. One of these is essentially pumping money directly into the economy. This process is known as quantitiative easing. 

QE means that the central bank creates new money and uses this money to buy bonds from investors such as banks or pensions funds. This new money increases the amount of cash in the financial system, which then encourages financial institutions to lend more to businesses and individuals. This in turn should allow businesses and individuals to invest and spend more, hopefully increasing growth. 

The Bank of England used QE during the 2008/2009 financial crisis in an attempt to stimulate economic growth. Inital changes…