Inside the Room Where 9 People Decide the UK’s Interest Rate
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What is the purpose of the Bank of England’s Monetary Policy Committee and how does it aim to keep inflation at 2%?
Our sponsor today is Take the Next Step, Invest. Inflation is a funny concept. It can be really difficult to really internalize because it normally happens in small enough increments that we don't really notice it. The price of something in a supermarket goes up by fifteen P. But inflation is one of the most corrosive forces in finance. It's been brought home by the cost of living crisis in recent years because the price jumps have been so drastic. The best lever that most people have to outrun inflation is investing. So if you have solid savings and money you won't need for the next five years, then think about it. Take the next step, invest. One of the Bank of England's key targets is to keep inflation, which is the rate at which prices rise, at 2%.
The idea really is that they'll increase interest rates, so that makes things like borrowing more expensive, so your mortgage, and also encourages people to save, which stops them from spending in the economy, and that helps reduce price inflation. That is at least a theory anyway. Dr. Swaty Dingra is an external member of the Bank of England's Monetary Policy Committee. That makes her just one of nine people who decide what the interest rate should be. How did you get that job?
I got a phone call one day asking me to apply. My first reaction was, But I'm not a monetary economist, why do you want me? And the key point was that a lot of the big shocks that have happened in the UK economy in the recent past have been things that have come from outside, external factors like the oil crisis, like the cost of living crisis before that. And that's really where my training is, which is in international economics as well as broadly thinking about supply chains. And I've hope I've brought some of that expertise to the committee.
Okay. The most recent decision was to hold the rate at three point seven five percent. And when we say decision, it wasn't your decision, it's a vote of those nine people, right? So we would like to go through that process if if that's okay, and just get a better understanding of of how that works. I wanna start with When do you start considering the next decision?
So if you really wanted from the very start, the day the actual vote happens, which is when you sort of the next day you hear the announcement, that very day we start to think about what are the the key issues that are going to be important for consideration in the next round. Because a lot of the conversations already happened, you're starting to see where the economy is headed. So the key question is can we try and put in place all of the research that could be done early on to be able to get us prepared for the next meeting? Typically, of course, things change in the matter of those six weeks. So it's not as though you can be foolproof with that kind of planning, but at least you can try and put some of the key aspects in place.
Then come about three meetings. The first meeting is one where the bank staff take us through a pre-monetary policy committee round, which is to say that we get updated on all of the various economic statistics that have been updated over those last previous over those six weeks that we've In a way. We then get another more sort of substantive meeting where we discuss what should be the policy stance going forward, probably even try to think about where things are headed in the next, say, not just six weeks, but a longer period of time over the year. And then finally we get to a point where we put in our indicative vote. And the Wednesday before the actual announcement day, which is Thursday, we put in our final vote.
And that's when you know everything starts to come to a close, which is that we we work out what the announcement should look like, what should be communicated to the financial markets as well as our other stakeholders. And then we basically on Thursday.
And y you said the the key information that might influence the decision you're provided with. What what are some of the key metrics or markers that you're looking at?
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Chapters
4 chapters
1
What is the purpose of the Bank of England’s Monetary Policy Committee and how does it aim to keep inflation at 2%?
0:01–5:37
2
How did Dr Swati Dhingra become an external member of the Monetary Policy Committee?
5:37–8:50
3
What is the step‑by‑step process the committee follows from the first meeting to the final vote on interest rates?
8:50–26:21
4
How do committee members express dissent and why might a member vote differently from the majority?
26:21–1:10:19