Note one
Bank Rate is a starting price, not the whole bill
The Monetary Policy Committee sets Bank Rate. Sterling markets, mortgage lenders and savings banks then decide, on their own clocks, how much of that setting reaches a household. Treating the announcement as an instant change in every account is how people get surprised.
The four channelsThis is a general explanation of the UK transmission mechanism. It is not a forecast of the next vote, and it is not advice to fix, float, save or borrow. Confirm the current Bank Rate on the Bank of England website before you act on any number you remember from a headline.
How a decision travels
From Bank Rate to SONIA
Bank Rate is the rate the Bank of England pays on reserves held by banks and building societies, within the current operating framework. The sterling overnight index average, SONIA, is the observed rate at which overnight unsecured deposits trade. In ordinary conditions SONIA sits close to Bank Rate. That overnight rate is the root of the swap curve that later prices fixed mortgages. If you only watch the vote and ignore the two-year and five-year swaps, you are watching the press conference and missing the price list.
Trackers
A lifetime tracker that is contractually a margin over Bank Rate should reprice when Bank Rate changes, usually from the next contractual date. The margin itself does not get renegotiated by the announcement. Read the offer document: some older products reference a different base.
Standard variable rates
An SVR is administered. Lenders often move it after a Bank Rate change, but the size and the timing are commercial decisions. A household on SVR is exposed, and the exposure is not a formula you can read off the MPC statement.
Savings pass through with a drag
Easy-access rates tend to follow the policy rate in the same direction, incompletely, and with a lag that widened and narrowed across the 2021 to 2024 hiking cycle. Fixed-term deposits price off the curve for their term, so a one-year bond can move before Bank Rate does, and can refuse to move after it does, if the market has already priced the path. Notice accounts sit between the two. National Savings and Investments is a separate state retail book with its own pricing, not a shadow of the high-street easy-access table.
What a quarter point does not do
A 0.25 percentage point change in Bank Rate does not reprice a mortgage that is inside a fixed period. The fix was set when the household locked the swap-implied rate, plus the lender's margin and fees. The next exposure is the refix date, or an early repayment charge if someone breaks the fix to chase a new price.
It also does not rewrite equity valuations by a fixed percentage. Shares respond to the whole expected path of real rates, to earnings news released the same week, and to the dollar, the oil price and credit spreads. Anyone selling a single-number "FTSE impact" on decision day is selling a slogan.
It does change the monthly interest on a tracker or a floating-rate debt the contract ties to Bank Rate, and it changes the opportunity cost of leaving cash in a non-interest account. Those are the clean effects. Everything else is mediated.
Historical anchor, so the scale is not abstract: Bank Rate was 0.10 percent in December 2021 and was held at 5.25 percent from August 2023 until the first cut in August 2024. That hiking cycle is the reference period for how incomplete savings pass-through can be. It is not a template for the next two years.
Gilts are where the path gets a market price
Bank Rate is an overnight decision. Gilt yields are the market's running price of government borrowing across years. The next note is about duration, conventional gilts and index-linked gilts, and why price and yield move in opposite directions.
Read the gilt note