UK Interest Rates
The current basic BoE interest rate is 4.7% as of 2024-11-13. You can find the latest UK interest rates analytics and data on MacroVar.
| UK Interest Rate | 4.75% |
| SONIA rate | 4.7% |
| 2-Year | 4.4915% |
| 10-Year | 4.52% |
UK Interest Rates Chart
UK interest rates interpretation
When the UK economy is strong and inflation expectations are rising the market is expecting central banks to raise rates in order to decelerate economic and inflation expectations. Short-term interest rates like the BOE interest rates are linked to the macroeconomic environment, fiscal and monetary policies and the financial markets (commodities).Hence, short term interest rates should be expected to rise and their related futures which are the 3-month Sonia futures should sell off (note: implied interest rate for futures is calculated as 100 minus the futures price). At the same time and since markets are interrelated, fixed income markets are linked the Yield Curve (10-year minus 3-month). The Yield curve steepens when growth expectations are rising and flattens when growth falls (MacroVar monitors all macroeconomic and financial factors which are leading indicators of growth expectations).
When central banks set rates correctly, we should expect smooth slope implied curve in the short term interest rate futures markets.
Highly sloping implied rate curves imply that the central bank reacted too late, the economy has overheated causing inflationary pressures and the futures markets imply aggressive interest rate hikes.
An Inverted implied rate curve implies that the central bank reacted too late, hence has to be more aggressive in order to combat inflation pressures, causing the business cycle to shorten, a possible recession due to early fast hikes and interest rate cuts later on to combat an impeding recession.
The BOE's meetings affect these markets to a large extent. When the BOE becomes more hawkish (tendency to raise rates) or dovish by either adjusting interest rates and/or use QE/QT, it affects the Short-term interest rates futures markets directly.
When the UK 2-year bond yield which is determined by market forces falls below the BOE refinancing rate it implies the market expects BOE to cut interest rates in the short-term future in order to boost the economy which is currently weak.
What are UK Interest Rates
The official bank rate
The official bank rate is the key interest rate in the UK. It is set by the Bank of England's Monetary Policy Committee (MPC), which meets eight times a year to decide whether to change it or not.
The official bank rate is the rate that the Bank of England charges banks and financial institutions for loans with a maturity of one day. It is also known as the Bank Rate or the base rate.
The official bank rate influences other interest rates in the economy, such as the lending and saving rates offered by high street banks and building societies. The Bank of England uses its influence to keep inflation low and stable, which is its main objective.
How does the official bank rate affect you?
If the official bank rate changes, then normally banks change their interest rates on saving and borrowing as well. But not always by the same amount or at the same time.
If the official bank rate goes up, borrowing becomes more expensive and saving becomes more rewarding. This means that people are likely to borrow less and save more, which reduces the demand for goods and services. This can help to lower inflation if it is too high.
If the official bank rate goes down, borrowing becomes cheaper and saving becomes less rewarding. This means that people are likely to borrow more and save less, which increases the demand for goods and services. This can help to boost inflation if it is too low.
However, other factors also affect how much people borrow and save, such as their income, confidence, expectations and preferences. And other factors also affect how banks set their interest rates, such as their costs, profits, competition and risk.
So, the relationship between the official bank rate and other interest rates is not straightforward or predictable. It depends on how banks and people react to changes in the official bank rate and other economic conditions.