Kavan Choksi UK Provides an Introduction to the Bank of England (BoE) and Its Functions

The Bank of England (BoE) is the central bank of the United Kingdom. It serves as the official banking institution for the U.K. government’s monetary affairs. Kavan Choksi UK points out that the BoE is the eighth oldest bank in the world. It essentially is the structural model for most central banks across the globe. The BoE is responsible for overseeing monetary policy in the United Kingdom, as well as issuing currency and supervising payment services. It also regulated banks and other financial firms in the country, and focuses on maintaining a resilient UK financial system.

Kavan Choksi UK provides an introduction to the Bank of England (BoE) and its functions

BoE was founded initially in 1694 as a private bank for the purpose of raising funds for the government. It started to issue bank notes in England and Wales in 1844 and eventually was nationalised in 1946 subsequent to World War II. The government transferred its authority to the Monetary Policy Committee (MPC) of the BoE in 1997. MPC subsequently became responsible for setting the UK’s benchmark interest rate.

 BoE’s Governor is selected from within the bank. It typically is the one who holds the most senior executive position and participates in all committees.  The Court of Directors is the primary administrative body and is responsible for overseeing the operations, strategies, and resource allocations of the BoE. The most prominent subcommittees of the BoE are:

• Monetary Policy Committee (MPC) that implements monetary policy and sets the interest rates
• Financial Policy Committee (FPC) that helps ensure stability in the financial system
• Prudential Regulation Authority (PRA) which regulates the Financials industry

Today the primary objectives of the Bank of England include managing the state of the economy and maintaining price stability. This is done through the MPC. The MPC has a primary mandate of keeping the annual inflation rate at 2%. This 2% level is determined by the Government of the United Kingdom. The BoE, however, is independent in its decision making. The MPC plays a pivotal role in managing inflation by setting the core interest rate at which it lends to the banks, as well as by buying or selling of assets. This process is known as monetary policy.

The Monetary Policy Committee of the BoE convenes about eight times each year in order to set interest rates. Subsequent to a series of preliminary meetings, the nine members of the committee vote on whether to increase, reduce or hold interest rates. Kavan Choksi UK underlines that increasing interest rates, also known as tightening of the monetary policy, is designed to reduce inflation in the economy. As borrowing money becomes more expensive, people invariably would have less money to spend, thereby lowering demand. On the other hand, in case the Bank of England does choose to cut rates, or ease policy, then borrowing money shall become cheaper. Consumers and businesses shall be inclined to spend more, which in turn boosts the economy but can also push prices up.

The Bank of England also provides economic stimulus via asset purchases. This policy is better known as quantitative easing (QE). Under this, the BoE basically purchases government bonds and other securities on the open market, and offer more liquidity to the banks, which further lowers interest rates and allows them to lend with easier terms.