Official bank rate

The official bank rate was held at 0.50% until 4 August 2016, when it was reduced, for the first time since March 2009, to a then record-low 0.25% - the BoE also expanded its quantitative easing (QE) programme, pumping an additional £60 billion in electronic cash into the economy to buy government bonds, extending the QE programme to £435 billion in total. Citing post-referendum uncertainty and lacklustre economic prospects in consequence, the MPC warranted the interest rate cut in order to bolster confidence, blunt the economic slowdown, and support the necessary adjustments to the UK economy. On 2 November 2017, however, the official bank rate was lifted from 0.25% to 0.50%, marking the first increase since 5 July 2007. Pointing towards record-low employment levels, accelerating inflation and stronger global economic growth, the MPC panel justified a slight increase in the base interest rate. On 2 August 2018, the MPC opted to increase interest rates to their highest level since 4 March 2009 - from 0.50% to 0.75% - citing concerns that the lowest unemployment rate since the mid-1970s risked re-igniting wage pressures. In May 2019, the BoE warned of potential official bank rate rises over the subsequent short-term, stating that indicatively modest economic recovery as Brexit-related uncertainty dissipated would have warranted higher interest rates than financial markets currently expect - inflationary pressures would likely have forced the central bank to act.

On 11 March 2020, however, the BoE announced an emergency cut to the base interest rate, with the MPC opting to reduce it from 0.75% to 0.25%. In light of immediate disruption to the marketplace caused by an exogenous economic shock borne out from the COVID-19 (coronavirus) pandemic, the BoE took borrowing costs back down to their then-lowest level in history, with the governor of the BoE stating policymakers had witnessed a notable, overnight deterioration in trading conditions, including a marked contraction in spending on non-essential goods; this justified slashing the rate, with expectations, at the time, that coronavirus would at the very least temporarily - albeit significantly - disrupt supply chains and weaken economic activity. With cashflows expected to prove adverse, the MPC leveraged monetary policy with the hope of buoying domestic demand, stimulating an appetite for short-term credit from households, and supporting working capital for enterprises. Ultimately, the rate cut was made to support net cashflows of borrowers during the initial outbreak – in other words, to reduce costs and improve the availability of finance - and also to instil confidence during a difficult economic period.

Just over a week later, however, the BoE MPC moved to cut the rate again on 19 March 2020, this time to a new record low 0.1%. A second emergency cut in quick succession occurred after the UK's financial markets became borderline disorderly, with fears among currency traders, policymakers and so forth mounting with regards to the severity of coronavirus from both a public health and economic impact perspective. A rate of 0.1% was held at such a level for an extended period to help stimulate market activity during a time overshadowed by lockdown restrictions, which prevented "normal" consumer and business behaviours, and a time characterised by prevalent uncertainty with regards to job security and near-term economic prospects. On 16 December 2021, however, the base rate was raised back to its 0.25% level – the first rise in more than three years – and hiked again on 3 February 2022, to 0.5%, with the latter representing the first tightening of monetary policy in consecutive BoE Committee meetings since 2004. As pandemic-related restrictions have been lifted, the BoE MPC is more inclined to hike interest rates to prevent the economy from overheating and so as to limit inflationary pressures.

As stated by the BoE in February 2022, "when economies around the world, including in the UK, opened up after Covid restrictions eased, people naturally wanted to start buying things again. But the people selling some of these things have had problems getting enough of them to sell to customers. This caused prices to rise during 2021 – particularly for goods that were imported from abroad. There were also unexpected events, like flooding, which slowed down the production of all sorts of electronic goods. Added to those factors has been a very sharp rise in energy (oil and gas) prices, especially in recent months. All of these things have pushed up prices, and will continue to be reflected in the annual rate of inflation over the coming year or so." A "perfect storm" of the economy reopening – domestic demand has accelerated relative to the crux of the pandemic – and supply constraints, have caused consumer prices to inflate, with the consumer price index (CPI) inflation rate ending 2021 at 5.4% as of December 2021.

After hiking the base interest rate to 0.75% on 17 March 2022, the BoE increased it again on 5 May 2022 to 1%, brining borrowing costs to levels unseen since the recession caused by the financial crisis. The CPI 12-month inflation rate rose to 7% in March 2022, up from 6.2% in February and some five percentage points above the BoE's government remit of 2%. Warning of a recessionary period, and as fears of stagflation mount – the BoE expects inflation to hit 10% in 2022 and economic growth to slow – the BoE is attempting to leverage monetary policy to stem inflationary pressures. Despite raising the base rate to its highest level since 2009, the central bank remains under pressure to tighten monetary policy further - pressure which has stemmed from stubborn and widespread increases in prices. Yet, in the UK market, inflation of late has been broad-based, though predominantly driven by external supply-side factors, specifically the rise in energy prices resulting from the Russia-Ukraine conflict, and the rise in tradable goods prices borne out from covid-related disruptions; an argument is made that in neither scenario is the spending power of UK consumers a significant factor, meaning it is not obvious a harsher stance with regards to monetary policy would do much to clamp down on inflationary pressures.