You may have seen headlines every now and then about the 'base rate'. What is it? How do they decide it? Here's a quick overview!
What does the term 'Base Rate' even mean?
The Base Rate, also known as the Bank Rate, is perhaps the most important interest rate in the UK.
It is set by the Monetary Policy Committee (MPC) of the Bank of England
The base rate determines the interest rate that the Bank of England pays to other banks that hold money with it.
In other words, its the rate that the banks get from the BoE, hence ‘bank rate’.
What does the Base Rate do?
Its aim is to meet the target that the government has set for maintaining low inflation.
In general, if interest rates are lowered, then spending tends to increase, and if rates are raised, tends to reduce spending. This is how the base rate is used to keep inflation in check.
Consequently, this rate affects the rate that those banks then charge people to borrow money or pay on their savings.
However, its worth noting that the base rate is not the only factor that determines the rates you get on your savings and loans, as banks need to balance covering their costs with providing an attractive rate to customers.
source:
Comments