DEFINITION of 'Bank of England - BoE'

The Bank of England (BoE) is the central bank for the United Kingdom. It has a wide range of responsibilities, similar to those of most central banks around the world. It acts as the government's bank and the lender of last resort. It issues currency and, most importantly, it oversees monetary policy.

Sometimes known as "the Old Lady of Threadneedle Street" in honor of its location since 1734, the BoE is the UK's equivalent of the Federal Reserve in the United States. Its function has evolved since it was established in 1694, and it has been responsible for setting the UK's official interest rate only since 1997.

BREAKING DOWN 'Bank of England - BoE'

The Bank of England was established to help the government borrow enough money to fund the ongoing war with France in 1694.

History

The BoE was established as a private institution in 1694, with the power to raise money for the government through the issuance of bonds. It also functioned as a deposit-taking commercial bank. In 1844, the Bank Charter Act gave it, for the first time, a monopoly on the issuance of bank notes in England and Wales, thus taking a major step toward being a modern central bank.

The gold standard was temporarily abandoned during WWI, and fully abandoned in 1931. The BoE was nationalized in 1946, following the conclusion of WWII. In 1997, monetary policy authority was transferred from the government to the BoE, making it politically independent for the first time.

Monetary Policy Committee

Interest rate policy is set by the Monetary Policy Committee (MPC), which has nine members. It is led by the Governor of the Bank of England; this is a civil service post with the appointment usually going to a career bank employee. The three deputy governors for monetary policy; financial stability; and markets and policy serve on the committee as well as the BoE's chief economist. The final four members are appointed by the Chancellor of the Exchequer, who is equivalent to the Secretary of the Treasury in the United States.

The MPC meets once a month to consider the need to change interest rate policy to achieve the government's inflation target. Each member of the committee has one vote, and a consensus of opinion is not required. The BoE raises and lowers the bank rate, which is the rate charged to domestic banks.

When the global financial market crisis hit in October 2008, the bank rate was 5%. It was reduced to 0.5% by March 2009, but the cuts failed to stimulate the economy. The MPC added additional stimulus through the Asset Purchase Facility, a process known as quantitative easing (QE).

Brexit

With the possibility that Britain could exit the European Union, a scenario known as Brexit for British Exit, the BoE has been charged with developing plans to deal with potential economic fallout. Possible developments include inflationary pressure from a collapse of the British pound or a weakening economy that could require interest rate cuts.

RELATED TERMS
  1. Central Bank

    The entity responsible for overseeing the monetary system for ...
  2. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European ...
  4. Bank

    A financial institution licensed as a receiver of deposits. There ...
  5. State Bank

    A financial institution that has been chartered by a state to ...
  6. Bank Rate

    The interest rate at which a nation's central bank lends money ...
Related Articles
  1. Insights

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  2. Personal Finance

    What Does a Central Bank Do?

    A central bank oversees a nation’s monetary system.
  3. Financial Advisor

    The Biggest Risks of Investing in Boeing Stock

    Learn about the biggest risks faced by Boeing investors. How should investors think about cyclicality, debt, sales volumes and customer concentration?
  4. Insights

    Top 4 Central Banks Dominating the World Economy

    Central banks play an integral role in market economies by maintaining the stability and credibility of national currencies used in those economies.
  5. Insights

    Bank of England in Pickle as Inflation Hits 3-Year High

    Will February's sharp rise in inflation have the Bank of England considering a rate hike?
  6. Trading

    Top 8 Most Tradable Currencies

    Currencies can provide diversification for a portfolio that's in a rut. Find out which ones you need to know.
  7. Investing

    How Boeing is More Than Just a Coach-Class Seat

    The number of market leaders that indisputably dominated their industry in 1916 and still do today is almost nonexistent — except for Boeing.
  8. Investing

    Boeing’s 3 Key Financial Ratios (BA)

    Learn about the reasons why narrow profit margins and a low sales growth rate have not prevented Boeing from achieving a high ROE for its shareholders.
  9. Insights

    Bank of England Cuts Interest Rates, Increases QE Program

    The Bank of England cut the base rate by 25bp to a record low and increased its QE program.
  10. Insights

    Free Up Lending, Halt Dividends: Bank of England

    The Bank of England has reduced capital requirements and halted any increase in dividend payments for U.K. banks.
RELATED FAQS
  1. What precise measures are implemented in most monetary policies?

    Read about some of the precise measures implemented in most monetary policies, and learn why monetary policy is considered ... Read Answer >>
  2. What are some examples of expansionary monetary policy?

    Learn about expansionary monetary policy and how central banks use discount rates, reserve ratios and purchases of securities ... Read Answer >>
  3. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of interest ... Read Answer >>
  4. Under what circumstances will a government change its monetary policy?

    Learn about the kind of variables, including political and theoretical factors, that can bring about change in a government's ... Read Answer >>
  5. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  6. What's the difference between monetary policy and fiscal policy?

    Fiscal policy is the collective term for the taxing and spending actions of governments. Monetary policy is the management ... Read Answer >>
Hot Definitions
  1. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  2. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  3. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  4. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  5. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  6. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
Trading Center