How does the Bank of England set interest rates?
The cost of borrowing is set by the Bank’s Monetary Policy Committee. Its remit is to ensure inflation, excluding interest rates, is as close as possible to 2.5%. The nine-strong panel meet for two days once a month. At the end of the meeting, the committee decides the level of interest rates by majority vote, and the announcement is made at noon. The Governor of the Bank, Sir Edward George has the casting vote if there is no majority. Why did the MPC decide to cut interest rates? The fall in the cost of borrowing had been widely expected. At the MPC’s meeting last month, the panel only decided to leave rates unchanged by the narrowest of margins. Since then, fears have grown that the US economy could be on the brink of recession, and interest rates have come down on the other side of the Atlantic. While pundits say that the UK is well placed to weather the storm and avoid an outright slump, growth could still be hampered. The latest figures, which showed UK growth already easing at th
