Official bank rate explained

In the United Kingdom, the official bank rate is the rate that the Bank of England charges banks and financial institutions for loans with a maturity of 1 day. It is the Bank of England's key interest rate for enacting monetary policy.[1] It is more analogous to the US discount rate than to the federal funds rate. The security for the lending can be any of a list of eligible securities (commonly gilts) and the transactions are overnight repurchase agreements. Changes are recommended by the Monetary Policy Committee and enacted by the Governor.

On 2 August 2018 the Bank of England base rate was increased to 0.75%,[2] but then cut to 0.25% on 11 March 2020,[3] and shortly thereafter to an all-time low of 0.1% on 19 March, as emergency measures during the COVID-19 pandemic.[4] On 15 December 2021, the Monetary Policy Committee voted 8-1 to increase the bank rate to 0.25%, and subsequently increased it thirteen more times to 5.25% on 02 August 2023[5] . As of 21 August 2024 the bank rate sits at 5%[6] .

History

The official bank rate has existed in various forms since 1694 and has ranged from 0.1% to 17%. The name and meaning (depositing vs lending) of this key interest rate has changed over the years. The current name, Official Bank Rate, was introduced in 2006[7] and replaced the previous Repo Rate (repo is short for repurchase agreement) in use since 1997. Previously (between 1981 and 1997) the name was Minimum Band 1 Dealing Rate and prior to that the Minimum Lending Rate.

See also

Notes and References

  1. Web site: How Monetary Policy Works.
  2. Web site: Interest & Exchange Rates Official Bank Rate History . Bank of England Statistical Interactive Database . BankOfEngland.co.uk .
  3. Web site: 11 March 2020. UK interest rates cut in emergency move. 13 March 2020. BBC News.
  4. Web site: Monetary Policy Summary for the special Monetary Policy Committee meeting on 19 March 2020. 19 March 2020. Bank of England. 19 March 2020.
  5. Web site: 2024-08-01 . Interest rates and Bank Rate . 2024-08-21 . www.bankofengland.co.uk . en.
  6. Web site: 2024-08-01 . Interest rates and Bank Rate . 2024-08-21 . www.bankofengland.co.uk . en.
  7. Web site: Further details about wholesale - baserate data. Bank of England.