How Does the Bank of England Work?

11 September 2026

You've probably heard the phrase "the Bank of England has changed interest rates" countless times. 


But what does that actually mean? 

Who decides whether interest rates go up or down? Why does the Bank of England change them? And how could a decision that gets made in London affect your savings, mortgage or loan? 


With the Bank of England's next interest rate decision coming up on 17th September 2026, here's everything you need to know, without the financial jargon. 


First, what is the Bank of England? 

The Bank of England is the UK's central bank, but it's different from the banks you might use for your current account or credit card. 


Its job is to help keep the UK's financial system stable and keep inflation under control. 


One of its most important jobs is setting the Bank Rate, the interest rate that influences many other interest rates across the economy. 


What is 'Bank Rate'? 

Bank Rate is the interest rate set by the Bank of England. 


It's important because it influences the interest rates that banks and other financial institutions charge on borrowing and pay on savings. 


Think of it as an important starting point for interest rates across the UK. 


When Bank Rate changes, your bank might adjust savings or borrowing rates too, although not necessarily by the same amount or straight away. 


If Bank Rate goes up: Borrowing can become more expensive, while saving may become more attractive. 


If Bank Rate stays the same: There is no change to Bank Rate itself. 


If Bank Rate goes down: Borrowing can become cheaper, while savings rates may fall. 


Who decides Bank Rate? 

The decision is made by the Monetary Policy Committee (MPC). 


It's made up of nine people, who look at what's happening across the UK economy before voting on what should happen to interest rates. 


The MPC meets eight times a year, roughly every six weeks. 


At each meeting, they consider things such as: 

  • Are prices rising too quickly? 
  • Are wages increasing? 
  • Are people spending more or less? 
  • Is the economy growing? 
  • What might happen to the economy next? 


They then vote to increase, decrease, or keep Bank Rate the same. 


Why does the Bank change interest rates? 

The main goal is to keep inflation close to the government's target of 2%. 


If inflation is too high, higher interest rates can help slow spending and borrowing, which can reduce pressure on prices. 


If inflation is under control and the economy needs support, lower rates can encourage people and businesses to borrow and spend. 


It's a balancing act. 


The Bank can't control the price of your weekly shop directly. Instead, it uses interest rates to influence spending and borrowing across the wider economy. 


What does this mean for you? 

This is where the Bank of England's decisions can start to feel a little more relevant. 


If you have savings 


Changes to Bank Rate can influence the interest rates available on savings and may also have an indirect impact on dividend rates offered by credit unions. 


When rates rise, savings rates may increase. 

When rates fall, savings rates may decrease. 


Credit union dividends work differently. They are based on the credit union's financial performance and are not automatically linked to Bank Rate. 


It's worth checking what your savings are earning, particularly when interest rates change. 


If you have a loan 


Changes to interest rates can affect the cost of borrowing. 


However, your loan rate isn't automatically the same as Bank Rate. What you pay depends on your lender, product, and individual circumstances. 


If you have a mortgage 


Changes to Bank Rate can affect some mortgage rates, particularly variable and tracker mortgages. 


Fixed-rate mortgages aren't directly changed when Bank Rate moves, although future mortgage rates can be influenced by wider market conditions. 


When Is the Next Bank Rate Announcement? 

The Bank of England's next Bank Rate announcement is due on Thursday 17th September 2026. 


The current Bank Rate is 3.75%, following the Bank's July decision to keep it unchanged. 


No one knows the outcome until the MPC announces it, so keep an eye on the news and check your interest rates afterwards to see whether you're affected. 

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