Setting the UK interest rate
The Bank of England Base Rate (BOEBR), also known as the official bank rate, is the rate of interest charged by the BoE to commercial banks for overnight loans. It is the base rate of interest for the UK economy and has a strong impact on the short and long term interest rates charged by commercial banks.
When the base rate is lowered, banks are encouraged to borrow more money from the BoE and lower their own interest rates. This reduces the cost of borrowing for businesses and consumers, enabling them to borrow and spend more. Conversely, if the base rate rises, borrowing money from the BoE is discouraged, leading banks to increase their own interest rates. This increases the cost of capital for businesses and consumers, making borrowing more expensive and incentivising saving.
These effects ripple across the global economy, affecting the financial markets, FX rates, and eventually economic factors like unemployment and inflation.