Monetary policy is the control of monetary variables such as interest rates and money supply by governments to stimulate the economy. Monetary policy can also be used to control the duration and severity of recessions. In recent years, monetary policy has become the primary instrument of government macroeconomic policies, with particular emphasis on interest rates as the main control variable within monetary policy. The importance of interest rates means that monetary policy can influence aggregate demand. For example, at higher interest rate levels, businesses invest less and households spend less due to the rising cost of money. Therefore, households and businesses are less willing to borrow money for investment or consumption purposes. Rising interest rates can also have an effect on 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 rise. If exchange rates increased due to rising interest rates, this would dramatically affect the UK's competitiveness in the world 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 over 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 original inflation target at that time was set at 2.5% for RPIX inflation. RPIX means that inflation rates were set to the retail price index excluding mortgage interest payments. However, in 2004, the inflation rate was raised to a rate... middle of paper... t in a country on the opposite side of the world. Regarding Figure 3, it is easy to see that the recession began to manifest itself towards the end of 2008, when inflationary prices began to decline quite dramatically. In conclusion, I believe that it is important to be aware that for monetary policy to be successful and effective, it must be combined and intertwined with other economic policies such as fiscal policy and supply-side policies. Therefore, it is not possible to blame monetary policy alone for the current economic downturn, nor would it simply be to praise monetary policy alone during relatively calm and stable economic times within the UK. Cited http://www.bankofengland.co.uk/images/from_int_inf2.gif http://www.bankofengland.co.uk/monetarypolicy/how.htm http://www.hm-treasury.gov.uk/statement_chx_050309 .htm