The Bank of England and interest rates
The nutshell
The Bank of England sets the UK's main interest rate, called Bank Rate. It moves Bank Rate up or down to help keep prices rising slowly and steadily.
Every fact on this page comes from the Bank of England and Parliament's own researchers. Each source tag — like BoE — opens where a fact comes from.
The basics
What the Bank of England does
The Bank of England is the UK's central bank. One of its main jobs is to set the country's main interest rate, called Bank Rate. Bank Rate is like a starting price for borrowing money. When it changes, banks change the rates on loans, mortgages and savings to match.BoE
Who decides Bank Rate
A group inside the Bank called the Monetary Policy Committee decides Bank Rate. It has nine members and meets eight times a year.BoEIts task is to keep inflation — the pace at which prices rise — close to a target of 2% a year. The government sets that target.BoE
How raising or cutting Bank Rate helps
When prices are rising too fast, the Committee can raise Bank Rate. Higher rates make borrowing cost more and saving pay more, so families and businesses tend to spend a little less. When spending slows, prices rise more slowly too.BoE When the economy is weak, the Committee can cut Bank Rate to make borrowing cheaper and encourage spending.
Why it matters day to day
Bank Rate reaches almost everyone. It helps set what a mortgage, a loan or a credit card costs, and what money in a savings account earns.BoE That is why each change is watched closely, and why the Committee explains every decision in public.
- Leaving Bank Rate to an independent committee, not to ministers, is meant to keep the decision free from short-term politics
- One clear target — 2% inflation — gives families and businesses a steady guide to plan around
- Every decision is published with the vote and the reasons, so it can be checked
- One interest rate for the whole UK cannot fit every family or area at once
- A rate change can take up to two years to work, so today's decision aims at an economy no one can see yet
- An appointed committee, not elected ministers, makes the call, so voters cannot remove it at an election
The deep end6 min
How Bank Rate is set
Bank Rate is set by the Monetary Policy Committee at the Bank of England. The Committee has nine members — the Governor, three Deputy Governors, the Chief Economist and four external members appointed by the Chancellor. It meets eight times a year, and each member has one vote, so Bank Rate is decided by majority.BoE
The government sets the goal, and the Committee chooses the tool. The Bank of England aims to keep inflation at 2% a year over the medium term, a target set by the government that counts a rise above 2% and a fall below it as equally unwanted.BoE The decision on the level of Bank Rate sits with the Committee. The Bank of England Act 1998 gave the Bank the job of setting interest rates to meet the government's inflation target, after the Bank was granted that role in 1997.HoC
How a rate change spreads through the economy
A change in Bank Rate does not touch prices directly. It works through borrowing and saving. When Bank Rate rises, banks tend to charge more on loans and mortgages and pay more on savings, so spending tends to fall, and slower spending eases the pressure that pushes prices up.BoE The effect runs the other way when Bank Rate is cut.
The effect is also slow. The Bank of England estimates that a change in Bank Rate can take around eighteen months to two years to have its full effect.BoE So a decision made now is aimed at where inflation is expected to be in a couple of years, not where it stands today.
What is debated
Little of the debate is about how Bank Rate works. Most of it is about who should hold the power, and how well the setup performs. The Bank of England and successive governments have kept the arrangement, on the argument that an independent committee keeps rate decisions free from short-term politics, and that one clear target makes prices more predictable. Others argue that a single interest rate cannot suit every household or region at once, and that an appointed committee, unlike elected ministers, cannot be removed by voters at an election. Both sides accept the same facts about how Bank Rate works, and differ on how the power should be held.
The record shows the rate moving with conditions. The House of Commons Library records that Bank Rate reached 5.25% in August 2023, and was then cut in steps to 3.75% by mid-2026 as inflation eased.HoC