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Monetary Policy Committee (MPC)

The Committee of the Bank of England that meet each month to set UK interest rates. The MPC is made up of 9 members including the Governor of the Bank of England. They usually meet on the first Wednesday and Thursday of each month with the rate decision announced at 12pm on the Thursday. Minutes of the MPC meetings, including how each member voted are released two weeks after the meeting.

The MPC’s objective is to keep the Consumer Price Index measure of inflation in the UK at 2%. By increasing the interest rate the MPC makes borrowing more expensive which they hope will slow the growth of the economy and reduce inflationary pressure. When the economy is struggling and inflation is falling, cutting interest rates is intended to stimulate the economy.

The interest rate has an impact on pretty much everyone – businesses borrowing to invest, savers and homeowners with mortgages – so a change can have a big impact on the economy. Therefore the financial markets, particularly the FTSE reacts strongly to interest rate changes. Currency rates against the pound are also sensitive to changes because if the interest rate available for holding sterling changes, this affects the demand for holding pounds.

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