Bank of England Governor Mervyn King has famously said his ambition is to make monetary policy boring. If futures markets are any guide, he has been successful. After a rollercoaster ride for much of the last 30 years, the path of British interest rates has become surprising smooth.
Britain's central bank raised the base rate from 4.5 percent to 4.75 percent in August, slightly earlier than many expected but only reversing a cut made in the previous summer. Indeed, Britain is the only major economy where interest rates now are exactly where they were at the start of 2005.
And anyone looking for policy to become more exciting may be disappointed. Futures markets show investors are betting British interest rates will rise only once or twice more before reaching a peak. If they're right, this would be the shortest tightening cycle since the central bank was granted independence in 1997. All this is a far cry from the 1980s and early 1990s when interest rates fluctuated by up to 10 percentage points per cycle.
"We get excited over a quarter-point move these days but I can remember when we had two hikes of two percentage points in the space of two weeks," said Stephen Lewis, chief economist at Insinger de Beaufort." During sterling crises of past decades British governments regularly used interest rates as a tool to prop up an ailing currency.
In 1985, former Chancellor of the Exchequer Nigel Lawson jacked up rates from 9.5 to 12 percent in mid-January and to 14 percent by the end of the same month. And in a frantic attempt to keep sterling within the bands of Europe's Exchange Rate Mechanism on September 16, 1992, the then Chancellor Norman Lamont raised rates from 10 to 12 percent in the morning and ordered a further hike from 12 to 15 percent in the afternoon.
His efforts were ultimately futile and the debacle, which became known as "Black Wednesday", etched itself on the collective consciousness as a national humiliation. Political interference in monetary policymaking ended at a stroke in May 1997 when the incoming Labour government granted the Bank of England operational independence under then governor Eddie George. King succeeded him in 2003.
Independence ushered in a period of unprecedented stability, helped by a favourable international environment as advances in information technology and the forces of globalisation put downward pressure on inflation globally. To be sure, Britain is not the only the country where interest rate policy has moved from heavy lifting to fine tuning.
Central banks in the United States and euro zone have also adopted a step-by-step approach, rarely changing rates by more than a quarter-point at a time. But even by international standards, the recent stability of British interest rates has been exceptional.
US interest rates, for example, have risen 17 times in the last two years - from 1 percent to 5.25 percent - while rates in the euro zone have risen five times in less than a year. The key reason, say analysts, is that British interest rates were never cut that low.