Money Market Operations and Volatility of UK Money Market Rates

The Bank of England implements UK monetary policy by influencing short-term interest rates in its money market operations. The way in which the Bank operates in the market has changed significantly over time, but the aim throughout has been to ensure that the behaviour of short-term interest rates is consistent with monetary policy decisions, whether made by the Chancellor of the Exchequer or, since 1997, by the Bank's own Monetary Policy Committee. Operational choices by the central bank, together with developments in the markets themselves, are likely to have affected the volatility of short-term interest rates. This article outlines various measures of volatility in sterling money markets.