Bank of England

IMPORTANT FACTS- Bank of England 

The Bank of England is the UK’s national bank. It’s not like a bank in your local high street. It has special functions that help keep the economy and financial system stable. Low inflation, trust in banknotes and a stable financial system are key ingredients for the economic well-being of our country. 

VIDEO: Watch these short videos for an introduction to the Bank of England. 

IMPORTANT FACTS- Bank of England Base Rate

  • The Bank of England sets the interest rate at which it lends to other financial organisations
  • This then affects the interest rates that are charged in the economy as a whole
  • A reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending and increases GDP
  • Higher levels of spending tends to increase prices
  • Therefore lower interest rates tends to increase inflation 
  • Lower interest rates can boost the prices of assets such as shares and houses
  • Changes in interest rates can also affect the exchange rate. An unexpected rise in the rate of interest in the UK relative to overseas would give investors a higher return on UK assets relative to their foreign currency equivalents, tending to make sterling assets more attractive.
  • This document gives a detailed description of how the Bank of England works.

IMPORTANT FACTS- Monetary Policy Committee

VIDEO: Explanation of MPC from A-Level students

The Monetary Policy Committee (MPC) decides Bank of England base rate every month. It has been set at 0.1% since March 2020 due to the Corona virus pandemic causing economic impact which lead to quantitative easing. In 1979 the rate got as high as 17%. The MPC is made up of an independent panel of experts.

The MPC is tasked with trying to keep inflation down – the government’s target is 2%. Inflation has been higher than this recently but the Bank of England has been trying to encourage spending (and hence increase GDP) by keeping interest rates low.

While the Bank of England is responsible for UK’s financial stability, two other organisations help maintain global financial stability. Namely: 

International Monetary Fund (IMF)

  • oversees the international monetary system
  • promotes exchange stability and orderly exchange relations among its member countries
  • assists all members – both industrial and developing countries – that find themselves in temporary difficulties balancing payments by providing short to medium-term credit

World Bank

  • seeks to promote the economic development of the world’s poorer countries
  • assists developing countries through long-term financing of development projects and programs
  • provides the poorest developing countries with special financial assistance 

Find out more here.