Bank Rate and gilts

Reviewed 14 October 2026

Okenitemode explains how UK indicators are built and read. Nothing on this page is a forecast, a recommendation, or a substitute for the official statistical bulletin. Worked numbers below are invented so the arithmetic is visible. They are not Office for National Statistics figures.

Who sets it, and against what

The Monetary Policy Committee sets Bank Rate. It meets on a published schedule, usually eight times a year, and can meet more often if it chooses. The target it is given is 2 percent CPI inflation, and the committee is expected to support the government’s economic policy including growth and employment, subject to that target. The minutes and the Monetary Policy Report are the documents that matter. A single vote tally without the reasoning is a sports score.

This page does not tell you what the committee will do next. It describes the instrument.

How a change is supposed to travel

Economists call the journey from Bank Rate to the wider economy the transmission mechanism. The usual channels are:

• Bank rates you can see. Savings and lending rates often follow, with a lag, and not one-for-one. A fixed-rate mortgage taken last year does not reset this afternoon. A tracker does.
• Asset prices. Higher policy rates tend to push bond prices down and can cool other asset prices, which changes how wealthy spending feels.
• The exchange rate. Higher domestic rates can support sterling, which makes imports cheaper and exports less competitive. The exchange rate has many other drivers, so this is a tendency, not a rule for a single day.
• Expectations. If households and firms believe inflation will stay near the target, they do not build a high inflation rate into wages and prices. Expectations are part of the tool, which is why the committee spends so many words on them.

A fictional quarter-point change is 0.25 percentage points, not 0.25 percent of Bank Rate. If Bank Rate were 4 percent, a cut of 0.25 percentage points would take it to 3.75 percent. On a £200,000 interest-only loan, a full pass-through of that quarter point would be about £500 a year, or roughly £42 a month, before fees and before any lender decides not to pass it on. Most UK mortgages are not interest-only, and most new business is fixed for a term. The arithmetic is here so the unit is clear. It is not a quote.

Gilts are a price and a yield

A gilt is a UK government bond. The yield is the return a buyer locks in at the price they pay. When the price of an existing gilt rises, its yield falls, and the reverse. You cannot have “gilts up” as a single fact. Say whether you mean the price or the yield.

The two-year yield is more sensitive to where Bank Rate is expected to sit over the next couple of years. The ten-year yield also carries a view of growth, inflation over a longer horizon, and how much compensation investors want for holding a long bond. The curve is the set of those yields by maturity. An inverted curve, with short yields above long yields, has often appeared when markets expect policy to loosen later. It is a market price, not a law about recessions.

Index-linked gilts pay interest and principal that move with the Retail Prices Index. Their presence is one reason debt-interest costs in the public finances can jump when RPI jumps, even if the government has not issued a single new bond that week. That link is explained again on the public finances page.

Quantitative tightening, in one paragraph

During spells of asset purchases the Bank bought gilts and created reserves. Letting those holdings run off, or selling some, is quantitative tightening. It is a separate decision from the level of Bank Rate, even though both affect financial conditions. When a report says “the Bank tightened”, look for whether it means a Bank Rate vote, a change in the balance sheet, or guidance about the future. They are not synonyms.