Monetary policy

Monetary policy is the process by which the Bank of England sets the interest rate – and sometimes carries out other measures – in order to reach a target rate of inflation.

Our Monetary Policy Committee is responsible for making decisions about how we try to reach the inflation target. The committee mostly does this by changing the Bank of England’s official interest rate, Bank Rate. More recently, we have also carried out quantitative easing to help stimulate the economy to reach the inflation target.

Reaching the target rate of inflation is the main objective of monetary policy. But we also have a secondary monetary policy objective, which is to support the Government’s economic objectives, including those for growth and employment.

The inflation target

The inflation target is set by the Government.

Find out more about inflation and the target

Current interest rate (Bank Rate)

To meet the target rate of inflation, we use an interest rate known as Bank Rate or the Base Rate. This is set by our Monetary Policy Committee (MPC).

We use this rate to influence the overall level of activity in the economy. 

If inflation looks set to go above target we would probably increase interest rates so people spend less, which tends to reduce inflation.

Or if inflation looks likely to fall below target, we would probably cut interest rates to boost spending in the economy and help inflation to rise.

Find out more about interest rates

The Monetary Policy Committee (MPC)

The Bank of England’s Monetary Policy Committee (MPC) is responsible for setting Bank Rate. It chooses a rate that it thinks will enable us to meet our inflation target.

Members of the MPC

The MPC gets a remit letter, typically annually, from the Chancellor

Monetary Policy Committee remit letters

Monetary Policy Committee meetings

The MPC meets eight times a year to set the interest rate.

Future MPC announcement dates

Ahead of each meeting, the MPC receives briefings on the economy from Bank of England staff. This includes a half-day meeting – known as the ‘pre-MPC meeting’ – which usually takes place the week before the MPC's interest rate setting meeting. The MPC members are made aware of all the latest data on the economy and hear explanations of recent trends and analysis of relevant issues. The committee is also told about business conditions around the UK by the Bank's Agents

The MPC meets over three further days. 

At the first meeting, normally held on the Thursday before the interest-rate decision is announced, members discuss their views on how to interpret the most recent economic data. 

At the MPC’s second meeting – the first of two policy meetings, normally held the following Monday – the members debate what the appropriate monetary policy stance should be.

The MPC’s final meeting – its second policy meeting – is normally held on the Wednesday. Following further discussion on the stance of monetary policy, the Governor puts to the meeting the policy that he believes will command a majority, and the members vote. The MPC decision reflects the vote of each individual member, rather than being based on a consensus of opinion. If there is a tie, the Governor casts the deciding vote. Any member in a minority is asked to say what level of interest rates they would have preferred. 

The interest-rate decision is published alongside the minutes of the MPC’s meetings at 12 noon on the Thursday.

The Inflation Report

We publish the Bank of England Inflation Report once a quarter, at the same time as the MPC meeting minutes and the interest rate decision. 

The Inflation Report provides an analysis of the UK economy and the factors influencing our policy decisions. It also includes the MPC’s latest forecasts for inflation and output growth, which are necessary because it takes up to two years for monetary policy to have an effect on the economy.

This page was last updated 14 December 2017
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