What is the base rate?

• A. The maximum rate banks can charge on loans.
• B. The minimum rate of interest that banks and building societies must apply to loans and savings, set by the Bank of England.
• C. The average rate of inflation.
• D. The rate charged by businesses to customers.

Answer: (B)

The base rate is the interest rate set by the Bank of England as the benchmark for borrowing and saving across the economy. It is decided by the Bank’s Monetary Policy Committee and serves as the reference point that banks and building societies use to price loans and deposits. When the base rate moves, it tends to influence the rates you see on mortgages, personal loans, and savings accounts—rising bases make borrowing more expensive and savers often earn more, while lowering bases can make borrowing cheaper and savers earn less. It’s not a fixed legal minimum that banks must charge, nor the inflation rate, nor the rate businesses charge customers. It’s best described as the policy benchmark rate set by the Bank of England.