Chart: Bank of England Base Lending Rate Against the UK Inflation Rate, since 1948

A historical chart showing the UK’s monetary battle with inflation. It tracks the wielding of the Bank of England’s base lending rate against the Retail and Consumer Price Indexes, from June 1948 to the present day.

December 2021

On 16 December 2021, the Bank of England’s Monetary Policy Committee voted to increase the Bank’s base lending rate from a record low of 0.1 per cent to 0.25 per cent which was to the surprise of markets. An increase had been expected in mid-November.

Markets had expected an increase back in mid-November but the Bank opted to hold position.

The increase in December was seen as risky at a time of heightened uncertainty following the discovery of a new Covid-19 variant of concern — Omicron — in late November. Markets and analysts anticipated the Bank would raise rates in January or February 2022, after more is known about Omicron. Consequently, the December decision to raise rates was surprising.

Fiscally, the government is due to raise taxes in April and is promoting a high wage, high skill economy with its Plan for Jobs.

In mid-2021, the heads of all major central banks characterised rising inflation as ‘transitory’. In October, the Bank of England’s new chief economist, Huw Pill, warned that UK inflation is likely to rise “close to or even slightly above 5 per cent” in early 2022, and the Bank had forecast inflation to exceed 4 per cent before the end of 2021.

UK inflation stood at 5.1 per cent in November 2021, the highest it has been since October 2008.

Notes

The chart tracks UK inflation — RPI and CPI — against the Bank of England’s base lending rate, from June 1948 to the present. An interactive, full-page version can be found here.

The UK government used the Retail Prices Index (RPI) from its inception in 1947. The chart tracks RPI from June 1948.

The Consumer Prices Index (CPI) was launched in January 1996. Estimates, which are broadly consistent with the data from 1996, are also available back to 1988. The chart tracks CPI from 1989.

The CPI was adopted by the government as the official measure of inflation in December 2003.

Retail Prices Index (RPI)

Inflation was measured using the Interim Index of Retail Prices from 1947 to 1955. It was rebased and renamed the Index of Retail Prices in January 1956 and replaced with the General Index of Retail Prices based from January 1962. It was rebased again in January 1987, following the issuance of the first index-linked gilts. The RPI was also calculated excluding mortgage interest payments, known as RPIX.

Separation of Monetary and Fiscal Policy

In 1997, the UK government handed the setting of the base lending rate to the politically independent Bank of England Monetary Policy Committee. It became responsible for adjusting interest rates to meet an inflation target set by the Chancellor of the Exchequer — initially an RPIX of 2.5%. In simple terms, the government is responsible for setting fiscal policy — the inflation target — and the Bank of England wields the tools necessary to meet that target, such as interest rates. In December 2003, the government changed the inflation target from an RPIX of 2.5% to a CPI of 2%.

CPIH

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) was launched in early 2013 and became the lead inflation index in UK official inflation statistics on 21 March 2017.

Note that the UK government uses the CPI for its official inflation measure in its inflation targeting. For this reason, the chart tracks CPI and does not track the CPIH.

Chart Notes

• Updated once a month with the latest Bank of England and Office for National Statistics data.
• Includes current CPI and RPI data for comparison
• Full-page interactive chart, here

References

• Consumer Prices Indices Technical Manual, 2019 — Office for National Statistics. [Online]. [Accessed: 10-Jan-2022]