Monetary policy is the control of monetary variables, such as interest rates and the money supply, by governments in order to stimulate the economy. Monetary policy can also be used to control the length and severity of recessions. In recent years, monetary policy has become the main tool of governments' macroeconomic policies, with particular emphasis on interest rates as the main variable controlling monetary policy. The importance of interest rates means that monetary policy can affect aggregate demand. For example, when interest rates are higher, businesses invest less and households spend less due to the increased cost of borrowing. As a result, households and businesses are less willing to borrow money to invest or consume. Rising interest rates can also impact the international world. For example, if the UK has relatively high interest rates compared to the rest of the world, this will cause exchange rates to escalate. If exchange rates rise due to rising interest rates, this will significantly affect the UK's competitiveness in the global market. Changes in interest rates and their effects can be explained by the transmission mechanism of monetary policy. In May 1997, Tony Blair's government handed responsibility for monetary policy to the Bank of England. It was therefore up to the Bank of England to try to achieve the government's stated inflation targets. The initial inflation target at the time was set at 2.5% for RPIX inflation. RPIX means that inflation rates have been set to the Retail Price Index while excluding mortgage interest payments. However, in 2004, the inflation rate was reduced to a rat...... middle of paper...... t in a country on the other side of the world. Looking at Chart 3, it's easy to see that the recession began to set in towards the end of 2008, as inflationary prices began to decline quite dramatically. In conclusion, I think it is important to be aware that for monetary policy to be successful and effective, it must be combined and closely linked to other economic policies such as fiscal policy and financial policies. the offer. Therefore, it is not possible to solely blame monetary policy for the current economic downturn, nor is it possible to solely praise monetary policy during relatively calm and stable economic periods in the UK. Works Cited http://www.bankofengland.co. uk/images/from_int_inf2.gifhttp://www.bankofengland.co.uk/monetarypolicy/how.htmhttp://www.hm-treasury.gov.uk/statement_chx_050309.htm