Bank Rate: what it means
The interest rate the Bank of England pays on reserves held by commercial banks. Set by the Monetary Policy Committee, it is often called the base rate.
Bank Rate is the Bank of England's main policy interest rate: the rate it pays on reserves that commercial banks hold with it. It influences the rates banks charge and pay on loans, mortgages and savings. It is set by the Bank's Monetary Policy Committee (MPC), which has nine members and normally makes eight decisions a year.
Worked example
If Bank Rate rises by 0.25 percentage points and a lender passes this on in full to a hypothetical £100,000 variable-rate mortgage, annual interest rises by about £250. Fixed-rate borrowers are not affected until their fixed period ends.
How it trips up claims
- "Base rate", "interest rate" and "Bank Rate" are used interchangeably in everyday speech; mortgage and savings rates set by lenders are different.
- Changes are announced in percentage points or basis points. A cut "from 5% to 4.75%" is 0.25 points, not 0.25%.
- The MPC's remit is to meet the 2% CPI inflation target set by the government.
The full history of Bank Rate decisions is on the Bank's database. See the current Bank Rate.
Also searched as: base rate, Bank of England interest rate, official bank rate, BoE base rate
Official figures that use this term
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Key figures where it matters
- Bank of England Bank Rate
- UK consumer credit growth
- UK 10-year gilt yield
- Average quoted 2-year fixed mortgage rate
Questions that use this term
- What is the Bank of England base rate today?
- How often are UK interest rates reviewed?
- Where can I find average UK mortgage rates?
Related terms
- Quantitative easing (QE): The Bank of England's purchase of assets, mainly government bonds, with newly created central bank money to lower longer-term interest rates and support spending.
- CPI (Consumer Prices Index): The UK's main measure of consumer price inflation for the Bank of England's 2% target. It tracks the prices of a basket of goods and services bought by households.
- Percentage point: The arithmetic difference between two percentages. A rise from 4% to 5% is one percentage point, but a 25% increase in the rate.
- Gilts: Bonds issued by the UK government to borrow money. They pay a fixed interest (coupon) and repay the face value at maturity; index-linked gilts rise with RPI.
More inflation, prices and the economy terms: CPI (Consumer Prices Index) · CPIH · RPI (Retail Prices Index) · Core inflation · Nominal GDP · Chained volume measure · Purchasing power parity (PPP) · Quantitative easing (QE) · Quantitative tightening (QT) · GDP deflator · Output gap · Productivity.