What are interest rates and why do they matter?published at 11:10 BST
Dearbail Jordan
Senior business and economics reporter
An interest rate is what it costs to borrow money or the return you get on your savings.
The interest rate set by the Bank of England is what it charges High Street banks and building societies to borrow money.
It dictates how much those banks and building societies charge their own customers to lend to them for things such as mortgages. It also determines the interest that savers can earn.
One of the Bank of England’s key responsibilities is to “maintain price stability” – which basically means keeping inflation at or close to a target of 2%. It does this by raising, holding or cutting interest rates.
If inflation is way above target, for example, the Bank lifts interest rates which makes borrowing more expensive and should, in theory at least, dampen consumer spending and encourage people to save their pennies.
UK inflation had been falling and since August 2024, the Bank cut interest rates five times.
But in the past few months, inflation has been ticking higher meaning that any imminent rate cuts from the Bank of England are far from certain.