THE BANK OF ENGLAND

The Bank’s roles and functions have evolved and changed over its three-hundred-year history. Since its foundation, it has been the Government’s banker and, since the late 18th century, it has been banker to the banking system more generally – the bankers’ bank. As well as providing banking services to its customers, the Bank of England manages the UK’s foreign exchange and gold reserves.

The Bank has two core purposes – monetary stability and financial stability. The Bank is perhaps most visible to the general public through its banknotes and, more recently, its interest rate decisions. The Bank has had a monopoly on the issue of banknotes in England and Wales since the early 20th century. But it is only since 1997 that the Bank has had statutory responsibility for setting the UK’s official interest rate.

Interest rates decisions are taken by the Bank’s Monetary Policy Committee. The MPC has to judge what interest rate is necessary to meet a target for overall inflation in the economy. The inflation target is set each year by the Chancellor of the Exchequer. The Bank implements its interest rate decisions through its financial market operations – it sets the interest rate at which the Bank lends to banks and other financial institutions. The Bank has close links with financial markets and institutions. This contact informs a great deal of its work, including its financial stability role and the collation and publication of monetary and banking statistics.

The Bank of England is committed to increasing awareness and understanding of its activities and responsibilities, across both general and specialist audiences alike. It produces a large number of regular and ad hoc publications on key aspects of its work and offers a range of educational materials. The Bank offers technical assistance and advice to other central banks through its Centre for Central Banking Studies, and has a museum at its premises in Threadneedle Street in the City of London, open to members of the public free of charge.

Governance

The current governance and accountability framework is set by the 1998 Bank of England Act, which provides for a Court of Directors, a Committee on Non-Executive Directors within Court, and a Monetary Policy Committee.

The Court of Directors

Court consists of the Governor, two Deputy Governors and 16 Directors. The Directors are all non-executive. The Governors are appointed by the Crown for five years and the Directors for three years. Details of the current Court can be found in the Bank’s Annual Report.

Under the Act, the responsibilities of Court are to manage the Bank’s affairs, other than the formulation of monetary policy, which is the responsibility of the Monetary Policy Committee. This includes determining the Bank’s objectives and strategy, and aiming to ensure the effective discharge of the Bank’s functions and the most efficient use of the Bank’s resources. During the year, Court commissioned an external review of its effectiveness. The purpose of the review was to evaluate how Court functioned and performed as a body, with a view to identifying ways to improve its operation and effectiveness. A series of actions have been agreed that will be taken forward.

The Monetary Policy Committee (MPC)

The Bank of England Act establishes the MPC as a Committee of the Bank, the Bank’s objectives in relation to monetary policy are to maintain price stability and, subject to that, to support the Government’s economic policies, including its objectives for growth and employment. At least once a year, the Government specifies the price stability target and its growth and employment objectives. The MPC must meet at least monthly; its members comprise the Governor and Deputy Governors, two of the Bank’s Executive Directors and four members appointed by the Chancellor. The MPC’s decisions are announced after each monthly meeting and minutes of their meetings are published two weeks later. The quarterly Inflation Report includes the MPC’s projections of inflation and output.

Structure

In working towards its core purposes, the Bank is organised into three main operational areas – Monetary Analysis and Statistics, Market Operations and Financial Stability, supported by a Central Services area. This structure was introduced in June 1998 to reflect the Bank’s new responsibilities in the light of the 1998 Bank of England Act. In addition, the Co-ordination Division for Europe is responsible for coordinating the Bank’s work on Europe, specifically in relation to the euro. The Centre for Central Banking Studies offers teaching and technical assistance to other Central Banks.