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# Explain two factors considered by the Bank of England’s MPC when setting Bank Rate
- URL: https://www.a-level-economics-tutor.com/explain-two-factors-considered-by-the-bank-of-englands-mpc-when-setting-bank-rate/
- Published: 2026-07-29T15:13:42.000Z
- Updated: 2026-07-29T15:13:42.000Z
- Author: Jaisul Naik
- Tags: AQA 10 mark question

### [AQA AS-Level Paper 2 June 2023 Insert](https://www.a-level-economics-tutor.com/content/files/2026/03/AQA-AS-Level-Economics-Paper-2-Insert-June-2023-1.pdf?ref=a-level-economics-tutor.com)

Extract B (lines 7–9) states: ‘With this in mind, the government sets the target rate of inflation that the Bank of England’s Monetary Policy Committee (MPC) has to achieve.’ 

**Explain two factors considered by the Bank of England’s MPC when setting Bank Rate. (10 marks)**

1. One factor the MPC would consider when setting the bank rate is the rate of inflation.
2. Extract B mentions that 'high inflation can be disruptive'.
3. Inflation is the rate that average prices are rising by.
4. A higher bank rate, and therefore higher high street interest rates mean that the cost of borrowing and the reward for saving increase.
5. This incentivises consumers and firms to save more and borrow less.
6. This leads to a fall in consumer spending and investment.
7. These are both components of aggregate demand (C+I+G+X-M), so therefore aggregate demand decreases in the UK economy, and the price level falls back towards the 2% target.
1. Another factor the MPC might consider when setting the bank rate is the current account.
2. If they were to raise interest rates, this would increase the reward for saving in the UK.
3. This would make it more attractive for people to buy the pound, meaning that there would be an increase in hot money flows into the UK.
4. This increases the demand for the pound, causing the pound to appreciate.
5. This makes imports cheaper and exports more expensive, which would lead to a worsening of the current account deficit.
6. Therefore, this is something that the MPC should consider when they are thinking about raising interest rates.

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