An all time low since 1694 – interest rate highlights

Bank of England

The Bank of England

Yesterday the Bank of England finally cut base rate to 0.25% – an all-time low. That phrase sparked our curiosity, so we’ve had a look at some highlights from the long history of the base rate.

How to pay for a navy – 1694

Established as the Governor and Company of the Bank of England through the Tonnage Act in 1694, the Bank pre-dates the Act of Union of 1707 and is the second oldest central bank after Sweden’s.

Its initial purpose, as a private enterprise, was to raise enough capital to lend to the government to build up the navy after the Nine Years War with France. An initial loan requirement of £1.2 million was raised in 12 days and half was spent on the navy.

The inaugural rate was 6%. This changed twice over the next five years to settle at 4.5% in 1699. In 1716 this dropped to 4%, then rose again 1719 to 5%. Where it remained for over 100 years.

Steady as she goes


‘The Headlong Fools Plunge into Sout Sea Water’

The 5% rate rode through the 1720 South Sea Bubble, the great economic scandal of the 18th century. Similar to the Wall Street Crash of 1929, businesses were ruined and bankruptcies rife. There were suicides, rioting bankers in Parliament and the expulsion and imprisonment of the Chancellor, among others, for his part in the disaster. Even the King’s mistresses (there were two) had invested and were jeered by crowds of angry Londoners.

The rate held even through the protracted American War of Independence and the Napoleonic Wars – by when the navy was in more than good shape.

Industry, war and crashes – new highs

The industrial revolution increased the need for capital and accelerated rate changes from the 1820s.

During the 1850s and 1860s the interest rate yo-yoed monthly, even within months. During the Crimean War the Bank went back to its roots to raise money to back the conflict, with the result that a peak rate of 10% was reached in November 1857.

This was only matched again in May 1866, a year which saw 15 different interest rate changes, four in May alone. The collapse of the London bank Overend, Gurney and Company owing £11 million led to the only previous run on a British bank until the Northern Rock crisis in 2008.


The Barings debacle.”Same old game” The Old Lady of Threadneedle Street “You’ve got yoursleves into a nice mess with your precious ‘Speculation’! Well – I’ll help you out of it – for this once!!”

In an effort to avoid a similar disaster, in 1890 the Bank bailed out Barings Bank which had suffered heavy losses from its investments in Argentina. The “too big to fail” precedent was set.

In the run up to war in August 1914, the rate once again peaked at 10%, as small investors tried to replace their notes with gold. The rate didn’t last, falling back to 5% for most of the war years.

Twentieth century blues

Much blame for the recession of the 1920s has been placed on a failure to aggressively cut interest rates after the war. By 1933 it was down to 2%, where it remained through the Second World War barring a brief rise again, in August, of 1939.

After the 1945 election, the Bank, along with much else, changed when it passed from private ownership to nationalisation in 1946.

By the 1970s, the minimum lending rate saw a return to the mid-19th century frenzy of rate changes and unheard of highs.


Cars queuing for petrol 1973

The world oil crisis in 1973 saw the rate finish on 13% after 11 rate changes, but worse was to come: 14 changes in 1976 saw a high of 15% in October. 1977 saw this halved to 7% after 19 changes over the year. The high watermark of interest rates was reached in 1979 at 17% during the early months of the Thatcher government.

The Black Monday, Tuesday and Wednesday of the late 1980s and early 1990s saw Chancellors grappling with stock market crashes and the collapse of sterling. In 1997 Labour Chancellor Gordon Brown handed control of interest rates back to the Bank of England.

It all looks fairly exhausting. But we are now in uncharted waters. We’ve seen the peaks over time: the latest trough is quite a new phenomenon.


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