17. National central banks (NCBs)

17. National central banks (NCBs)

Bank of England raises interest rate to 5%

1.      Mortgage repayments, along with the cost of overdrafts and credit card debts, are set to rise after the Bank of England surprised the City yesterday by announcing its first rise in interest rates for more than a year.

2.      News of the quarter-point rise to 5% was cautiously welcomed by some financial institutions, but was largely condemned by industry and trade unions.

3.      A statement from the Bank of England’s monetary policy committee said that strong growth, a recent recovery in consumer spending, buoyant export markets and signs of a pick-up in investments meant that action was necessary in order to meet the government 2.5% inflation target.

4.      The statement said “with inflation likely to remain above target for some while, it was judged to necessary to bring consumer prices inflation back to target in the medium term.”

5.      A response from the London Board of Business and Exporters described the move as premature, and likely to damage businesses, especially those dependant on export earnings.

6.      Many homeowners will face higher monthly bills through increased mortgage costs, especially those with variable rate and base-rate tracker mortgages. If mortgage lenders pass on the rise in full, it will add around f20 to the monthly repayments on a f100,000 mortgage. According to Sarah Parker of the Family Income Monitoring Unit, the average family will need to find around another f40 a month.

7.      Few analysts predicted a rate increase, and some had never been expecting a decrease to help boost a subdued housing market. Many were talking about the increase being a pre-emptive strike, with the small increase in borrowing costs now intended to ward off the need for a more painful rise later.

8.      In the City’s money markets, however, there were expectations of a further tightening of the Bank’s policy and further interest rate rises – perhaps up to 5.75% – unfolding over the next twelve months. Fears that further rate increases would affect consumer spending wiped f17bn off the value of the London stock market.


1. The City  

a. the people of London    b. financial professionals working in London

2. a quarter-point rise  

a. a 0.25% rise   b. a 2.5% rise

3. consumer spending 

a. money spent by businesses b. money spent by ordinary people

4. a pick-up in investments 

a. in increase in share prices  b. a drop in share prices

5. in the medium term

a. over the next few months  b. over the next few years

6. a pre-emptive strike 

a. an action taken before it becomes necessary  b. an action taken after it becomes necessary


1.      steady economic expansion  strong growth

2.      higher than desired         above target

3.      too soon                    premature

4.      avoid                       ward off

5.      occurring                   unfolding


12. The move was condemned by industry means business people thought the action was ______.

A. a good thing            b. a bad thing              c. neither good nor bad

13. Most banks passed on the 0.25% rise in full means that most banks increased their lending rates by…______

A. less than 0.25%        b. 0.25%                    c. more than 0.25%

14. Base-rate tracker mortgages are ______ the Bank of England’s interest rate.

A. lower than             b. the same as              c. linked to

15. I will need to find an extra f40 a month means that I will have to ______ another f40 a month.

A. pay                   b. earn                     c. save

16. A further tightening of policy is another ______.

A. review of target        b. policy reversal    c. unpopular implementation of policy

17. f17bn was wiped off the value of the London stock market means that ______.

A. few shares were traded in the UK b. UK share prices mostly went down

C. a lot of UK companies went bankrupt


A.     Implement the government’s monetary policy

B.     Decide monetary policy                                    YES

C.     Hold reserves of foreign currency

D.     Hold reserves of gold

E.     Hold reserves of jewels and valuable printings                 YES

F.      Set exchange rate                                           YES

G.     Help the government manage the exchange rate if necessary

H.    Manage the government’s account

I.       Provide current accounts for business                          YES

J.      Issue banknotes

K.     Control the money supply

L.      Control banks’ lending rates                                  YES

M.    Manage share prices                                         YES

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