We need to accept we’re going to be poorer

It's the Bank of England's job to keep inflation low and stable. Low and stable inflation is vital for a healthy economy where people can plan for the future and where hard-earned money keeps its value.



The main way we do that is through interest rates. An interest rate is the amount of money people get on any savings they have. It’s also the charge they need to pay on their loans and mortgages.



So what’s the link between the interest rates and inflation?



Higher interest rates make it more expensive for people to borrow money and encourage them to save. That means that overall, they will tend to spend less.



If, people on the whole, spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation.



The opposite is also true.



Lower interest rates mean it’s cheaper to borrow money, and there’s less of an incentive to save. This encourages people to spend and increases the rate of inflation.