How have UK interest rates changed over time?
The UK’s interest rate has experienced significant highs and lows since the Bank of England was founded in 1694. In this article, we explore the UK’s interest rate history, as well as how you can trade rate announcements.
UK interest rates: key figures
|Current base rate||19 March 2020||0.10%|
|Highest base rate||15 November 1979||17%|
|Lowest base rate||19 March 2020||0.10%|
Who sets UK interest rates?
The UK interest rates are set by Bank of England’s (BoE) monetary policy committee (MPC) by means of a vote. Mark Carney is the governor of the BoE and chairman of the MPC. The meeting happens on the first Thursday of each month, and the announcement is made two weeks after the meeting.
Why is the Bank of England base rate important?
The BoE base rate is important because it influences all other interest rates, including bonds, loans and savings rates. In other words, it affects the interest that you pay to commercial banks when you borrow money and how much interest you earn if you have savings. People often borrow money to pay for property, vehicles, school fees, and more. Because it affects how people spend, it also influences how much things cost. This means that the interest rate is also an important factor in determining inflation. The aim is to keep inflation at around 2%.
In addition, the base rate is important to traders – especially forex traders – because it gives them an indication of currency valuations. If the rate is higher than expected, it often has a positive effect on GBP and if it’s lower than expected, it has a negative impact.
UK interest rate timeline: key events
There have been many key events between 1979 and today that have affected the UK interest rate. They include:
1979: Interest rates rise to a staggering 17% when the Margaret Thatcher administration is appointed. Its aim is to lower inflation, but it also has a severe effect on British manufacturing exports and housing prices.
1992: The UK withdraws from the European Exchange Rate Mechanism and interest rates rise from 10% to 12%. Though the government wanted to raise it even more to increase investors’ interest in the pound, this plan never took off, and the rate was reduced back to 10% in September of the same year.
1997: The Tony Blair administration is elected, and interest rate decisions are handed over to the independent Bank of England. In this year, the interest rate increases to its highest in six years.
2003: Interest rates fall below 4% and worry starts to creep in over inflation. The base rate is effectively increased over the next few years to combat high inflation.
2008 to 2016: The global financial crisis causes the UK interest rate to drop to a low of 0.25%.
2017 to 2019: The MPC decides to increase the base rate to 0.5% and 0.75% soon thereafter. More increases were expected, but Brexit has reduced the chance of this happening any time soon.
2020: The coronavirus crisis forces the MPC to cut interest rates to an all-time low of 0.10% and additional stimulus packages are put in place following panic in financial markets.
Bank of England base rate timeline: 1979 to 2020
|Base rate at year end||Base rate at year end|
* As at 15 April 2020
How to trade UK interest rate announcements
To trade UK interest rate announcements, you can open a position on forex, UK stocks and indices such as the FTSE 100. These markets are all impacted if the interest rate changes, because the interest rate affects the value of various financial instruments.
Both spread betting and CFDs are leveraged products, which means you only have to put up a small deposit to gain exposure to the full value of the trade. While trading on leverage can magnify your profits, it can also magnify potential losses. Because you don’t own the underlying asset when trading spread bets or CFDs, you can go long or short. With IG, you can choose from up to 80 forex pairs and thousands of shares, with fast execution on your chosen market and convenient market hours.
Here’s how to start trading UK interest rate announcements:
- Decide which market you want to trade: you can learn more about the different markets to trade on IG Academy
- Create your trading plan: create a successful trading plan and risk management strategy in a few easy steps
- Open an account: it takes less than five minutes to create your CFD trading or spread betting account with IG
- Place your first trade: buy or sell the shares you’re interested in and monitor your open positions
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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