What are interest rates?
Interest rates are the price of borrowing money and the reward for saving it. In the UK the key rate is Bank Rate, set by the Bank of England. It was 3.75% in October 2026. Banks use it as a guide for mortgage, loan and savings rates, so it affects almost every household.
The Bank of England's Monetary Policy Committee has nine members. It meets eight times a year and votes on Bank Rate. Its job is to keep inflation at the government's 2% target. When prices rise too fast, it can raise rates to cool spending. When the economy is weak, it can cut rates to encourage borrowing and spending.
On 17 September 2026 the committee voted 6 to 3 to hold Bank Rate at 3.75%. CPI inflation was 3.1% in August 2026, above the target. The next decision is due on 5 November 2026. Three members wanted a rise to 4.00%, showing the committee was split. Markets watch each vote closely, because it shapes mortgage deals and savings rates for months ahead.
Changes take time to work through, often a year or more. Tracker and variable mortgages move quickly. Fixed-rate mortgages only change when a deal ends, which is why many people feel rate rises late. Savers usually gain when rates rise, while borrowers pay more. Higher rates also raise the cost of government debt, which squeezes what the Chancellor can spend.
Where you've seen it
The UK and the US in the late 1970s and early 1980s, when governments and central banks tried to control money growth to bring down inflation.
In the UK today
Strict money supply targets were dropped long ago, but the idea that controlling inflation is central lives on in the Bank of England's independence and its 2% inflation target.
Many on the left worry that high rates hit mortgage holders, renters and jobs, and want more weight given to growth and employment.
Many on the right stress that controlling inflation comes first and that an independent central bank keeps politicians from printing money.
Britain is split. Now you decide.
In Population Decides your Budget choices push inflation up or down. The Bank then sets rates that hit your growth and debt costs.
Play Population Decides freeCommon questions
Who sets interest rates in the UK?
The Bank of England's Monetary Policy Committee sets Bank Rate. It has been independent of ministers since 1997.
Why do interest rates go up when inflation is high?
Higher rates make borrowing dearer and saving more attractive. That reduces spending, which eases pressure on prices.
Do interest rates affect fixed-rate mortgages?
Not until the fixed deal ends. At that point the new rate on offer will reflect current market rates.
Which economist is linked to monetarism?
Milton Friedman. Monetarism is linked to the economist Milton Friedman.
According to monetarists, what mainly causes inflation?
Too much growth in the money supply. Monetarists argue inflation is caused mainly by too much growth in the money supply.