For a seemingly simple book, there sure are a lot of narrators in The Borrowers. Let's untangle.
First off, we get the original narrator, who is never named (although we might suspect it is Kate herself, perhaps grown up), who tells us the story of Mrs. May and Kate crocheting a quilt. Then the story switches narrators to Mrs. May telling Kate the story of Arrietty and the rest of the borrowers.
But Mrs. May's voice pretty much drops out when we read about Arrietty, and the book takes on more of a third person narrative voice. This narrator tells the story and is able to enter the minds of one or two characters. Sometimes it's easy to forget that Mrs. May is telling the story at all as we get so invested in Homily, Pod, the Boy, and Arrietty's adventures in the house. Mrs. May's voice drops out entirely in favor of delivering narrative nuggets of awesomeness that allow us to get close to our favorite tiny folks.
And finally, at the end of the story, we jump back to Mrs. May and Kate's dialogue. But we never again get the voice of that original narrator. What gives?
All of these stories within stories create distance between our main protagonists—Arrietty and Co.—and the real folks who learn about them, like Kate, Mrs. May, and even us, as readers.
Because all of the knowledge is secondhand, all of the events take on a fantasy-like, mysterious quality: did any of these things really happen? Do borrowers exist? We get to hear the stories and decide for ourselves.
The distance between our narrators and the borrower characters also highlights the passage of time, and possibly the way people view things differently when they grow up.
For example, maybe you remember baking with your grandma, but you can't really remember whether you were baking cookies or apple pie. You might remember that you loved your first teddy bear, which got lost, but you don't really remember what it looked like—just that it was brown. And if you ever found that teddy bear, it might not look much like you remembered it in your mind. But it's not the teddy bear that changed; you did.
The distance between the child that Kate was ("a wild, untidy, self-willed little girl who stared with angry eyes and was said to crunch her teeth" [1.1]) and her older self narrating the story reminds us that at its core, this is a novel about growing up. And as we grow up, we look back on our past in memory, which may or may not be the most reliable source in the world. How much of our memory is real, and how much is pure imagination?