Bank of England: What is happening with interest rates in the UK? in World Economy News 23/03/2026 We started raising interest rates at the end of 2021 to help control inflation. Since then, inflation has fallen a lot and the pressures that caused the initial price rises have eased. As a result, we were able to start reducing interest rates in August 2024. We have made several cuts since then – the latest was to 3.75% in December 2025. Right now, inflation is above the 2% target. We said in November 2025 that it had peaked and would fall from there. It was at 3.4% in December 2025 and we expected it to reach 2% in spring 2026. However, this was before war broke out in Iran and the Middle East. This has disrupted the transportation and supply of oil and gas and pushed up energy prices. Unfortunately, this means inflation will be higher than we expected, at least in the short term. We are monitoring the situation closely and will do what is necessary to make sure that inflation stays on track to meet the 2% target in the medium term. We make our decision on interest rates every six weeks or so. Each time, we look at the state of the economy and recent global developments, and what we expect for the coming months. The factors we consider include: • how fast prices are rising • how the UK’s economy is growing • how many people are in work We will announce our next decision on Thursday 30 April 2026. You can see our full list of upcoming dates along with links to our more detailed reports. How do higher interest rates affect inflation? Interest rates influence how much people spend, and that changes how shops and other businesses set their prices. Higher interest rates lead to higher charges on many mortgages and loans, meaning people must spend more on them and less on other things. It also means savers get a bigger return (ie they make more money by not spending) and potential borrowers find it is more expensive to take out a loan. These things make it less attractive for people and companies to spend money. When people spend less, businesses are less willing or able to raise their prices. When prices do not go up so quickly, inflation falls. Lower interest rates can have the reverse effect. If payments on mortgages and loans go down, people will have more money to spend on other things. Savers will get a smaller return and, therefore, may feel less motivated to put their money away. It will be also cheaper for potential borrowers to take out a loan – and use that money to make big purchases. All of these factors encourage spending. When people spend more, this means demand is high. And when demand is high, businesses often raise their prices, pushing up inflation. What is happening with inflation? Inflation has come down a long way since its peak almost four years ago – the events that led to price rises have settled down and raising interest rates has had the desired effect. However, we predicted that inflation would follow a bumpy path – it rose to 3.8% in July 2025. This was, in part, because of rising food prices after bad weather damaged harvests. Prices of services also increased, eg at hotels and restaurants. It was still at 3.8% in September 2025 after food prices fell but petrol price and airfare inflation rose. In November 2025, we said we believed inflation had peaked and that it should fall back towards 2% over the next year or so. It was 3.4% in December 2025. We expected inflation to fall to about 2% from April, thanks in pa