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[Economics] What is the Bank of England and why does it change interest rates?


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The Bank of England has held interest rates at 5.25% for the second time.

The decision follows 14 successive increases after November 2021 as the Bank tried to control inflation.

What is the Bank of England?
The Bank of England is the UK's central bank. It is independent of government but works closely with the Treasury.

It describes its key job as ensuring the UK has secure banknotes, stable prices, a safe banking sector and a resilient financial system.

Why does the Bank of England change interest rates?
The bank has a target to keep inflation - the official measure of how quickly prices are rising - at 2%.

The headline Consumer Prices Index (CPI) inflation rate - which tracks the price of a typical basket of goods - has dropped from a high of 11.1% in October 2022 to 4.6% in October 2023.

That was a sharp drop from 6.7% in September, and is the lowest rate in two years.

The fall was largely due to lower energy prices.

Despite the drop, CPI is still more than doublethe Bank's target.

"Core" inflation - which excludes the price of energy, food, alcohol and tobacco - dropped to 5.7% in October, down from 6.1% in September.

The recent sharp increases in inflation were initially due to rising energy and food costs - largely caused by global events such as the war in Ukraine. But other factors - like wage increases in the UK - had also helped keep prices high.

The bank's traditional response to rising inflation is to increase the UK's official interest rate.

This influences the saving and borrowing rates charged by High Street banks to individuals and businesses.

From November 2021, the Bank increased interest rates on 14 successive occasions.

However, in September, the Bank held rates at 5.25%, despite being expected to announce a further rise.

 

https://www.bbc.com/news/business-50837114

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