Base rate
Also called: Bank Rate, Bank of England base rate
The interest rate set by the Bank of England's Monetary Policy Committee, which underpins the rate charged on many commercial loans and determines certain statutory interest calculations.
Definition
The Bank of England base rate (formally "Bank Rate") is the interest rate at which the Bank of England lends to commercial banks overnight. It is set by the Monetary Policy Committee (MPC) and published on the <a href="https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate" target="_blank" rel="noopener noreferrer">Bank of England website</a>. The base rate is legally significant in several contexts: (1) <strong>Late payment interest on commercial debts</strong> — under the <a href="https://www.legislation.gov.uk/ukpga/1998/20/contents" target="_blank" rel="noopener noreferrer">Late Payment of Commercial Debts (Interest) Act 1998</a>, statutory interest on overdue business-to-business invoices accrues at 8% above the base rate (fixed for each six-month reference period: the base rate on 31 December for the following 1 Jan–30 June period, and on 30 June for 1 July–31 December). (2) <strong>Contractual rates</strong> — many bank loans, mortgages, and credit facilities are priced at base rate plus a margin. When the base rate changes, so does the cost of the loan. (3) <strong>Judgment debts</strong> — the statutory rate of interest on county court and High Court judgments is fixed at 8% per annum under the Judgments Act 1838 and does not automatically move with the base rate. (4) <strong>HMRC interest</strong> — rates charged by HMRC on late tax payments are linked to the base rate. Lenders use base rate movement as the standard basis for contractual rate adjustment clauses in mortgages and commercial loans.
In practice
If you have a tracker mortgage or a commercial loan priced at "base rate + X%", your payments will change every time the MPC moves rates. Check your mortgage agreement for the specific adjustment mechanism and whether any floor rate applies. For late payment of business invoices, use the <a href="https://www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt" target="_blank" rel="noopener noreferrer">GOV.UK late payment calculator</a> to work out the current rate. See the <a href="/glossary/interest" class="body-link">interest entry</a>, the <a href="/glossary/statutory-interest" class="body-link">statutory interest entry</a>, and the <a href="/glossary/daily-rate-of-interest" class="body-link">daily rate of interest entry</a> for related concepts.