It’s no mystery that UK markets are sensitive to the official bank rate, an interest rate set by the Bank of England (BoE) for secured overnight lending to major banks. An adjustment to the rate only needs to be anticipated—not actually made—for the markets to react. And sometimes it’s a lack of change that drives market volatility.

But what remains a mystery to many is what exactly the official bank rate is, how it’s set and why its movements (or lack thereof) can have such a profound effect on market activity.