Bank of England interest rate changes explained
The Bank of England has increased its key interest rate by 0.75 percentage points, the biggest hike in more than three decades.
Interest rates have risen in recent months in an effort to curb inflation.
What is the Bank of England?
The Bank of England is the UK's central bank. As a government-run organisation, it's independent of politicians and the government. The bank's main job is to manage the nation's economy, including interest rates and other economic factors.
Why does the Bank of England alter its interest rates?
The Bank's main duty is to keep the cost of living stable.
The central bank has a target to keep inflation at 2%, but prices are rising at about five times that level.
The Bank of England's traditional response to rising inflation is to increase the UK's official interest rate, which influences high street banks' savings and borrowing rates.
In November, the Bank of England increased interest rates by 0.75 percentage point to 3%, the highest level since 2008, when the UK banking system faced collapse.
The Bank of England raised interest rates last month by 0.5 percentage points to 2.25%. It warned at the time that further rises were likely.
Raising interest rates makes it more expensive for people to borrow money, so they tend to save more. This means that there is less money around for people to spend, so inflation should slow down.
How does the Bank of England change interest rates?
The Bank's monetary policy committee meets eight times a year to set interest rates.
The committee's nine members vote on whether to increase, reduce or hold interest rates and then announce their decision at noon.
After a series of preliminary meetings, the nine members of the Federal Open Market Committee (FOMC) vote on whether to increase, reduce or hold interest rates. Their collective decision is published at noon.
Four times a year, the Bank of England also publishes a Monetary Policy Report (MPR) which sets out the economic analysis and inflation projections that help it make interest rate decisions.
What else does the Bank do, other than issue currency?
The Bank of England also trades in government bonds.
In the same way that you might borrow money from a friend or family member, the government uses bonds to pay for things like roads and schools.
From 2009- 2021, the Bank of England bought £875 billion of government bonds in an effort to reduce overall government borrowing costs, lower interest rates and stimulate spending in the economy.
The Bank announced an emergency bond-buying programme after September's mini-budget caused turmoil on financial markets.
The Bank has now terminated its intervention. It is going ahead with its plan to sell some of the bonds it bought from governments.
What else does the Bank do?
The Bank of England produces banknotes and oversees the payments system.
Supervises and regulates banks and building societies
The Financial Stability Committee (FSC) is responsible for monitoring risks in the UK financial system and acting to reduce them, like lending to banks if they need it. It shares responsibility for this with the Treasury and the financial regulator, the Financial Conduct Authority.
The Bank of England's vaults store over 400,000 gold bars worth more than £200 billion.
Who runs the Bank of England?
Andrew Bailey became governor of the Bank of England in 2019. He had worked at the Bank for more than 30 years.
He served as the Bank of England's chief cashier from 2004 to 2011, signing his name on billions of UK banknotes.
The governor of the Bank of England is responsible for overseeing the Bank's main responsibilities. He or she chairs three committees that are important in helping it work towards its goals: the Monetary Policy Committee, the Financial Policy Committee and the Prudential Regulation Authority.