The Bank of England Monetary Committee monitors the interest rate you pay on mortgages and loans and that which is paid on savings, according to the economic conditions and also the base rate. The committee meets once a month to review the state of the UK economy and make adjustments to interest rate according this.

By lowering the base rate, the Bank of England encourages other banks and financial institutions to lower their interest rates on mortgages and loans. This means borrowing money becomes cheaper for businesses and people, which impacts spending and investment. When there is more money in the economy, prices and inflation increase. If the interest rate rises, this mechanism is used to reduce the amount of money in circulation, encouraging people to save rather than spend and borrowing money, as borrowing becomes more expensive. Less money in the economy lowers inflation.

One of the roles of the Bank of England is to keep prices stable through an inflation target. Each month, the Bank of England collects information about the economy and uses the money supply to try to influence inflation by raising or lowering interest rates according to the latest economic condition.

The Bank of England's interest rates affects us all either directly or indirectly. Directly, it affects the amount of interest we pay when we borrow money and the interest we receive when we save money. Rises in interest rate affect the cost of goods and services we buy, because the businesses that produce these have to pay more to borrow money. High interest rates are also an incentive for people to save because they earn more interest on their savings. Interest rate also affects the exchange rate of the pound. An increase may result in an initial rise in the exchange rate, as overseas investors buy more pounds. Over a period of time high interest rate can affect the UK's growth.

The Bank works together with several other institutions to secure both monetary and financial stability.

To Summarise

The official interest rate is set by The Bank of England. The Bank of England uses interest rate to manage inflation. Interest rate affects how much we save or spend, as well as the cost of goods and services.