The Bank of England (basically the Governor and Company of the Bank of England) is the central bank of the entire United Kingdom, and its importance has increased because of the model on which a lot of modern and large central banks have been created. It established in 1694 to act as an English Government bank. From that day it is still working as the banker for the UK Government. The Bank was privately owned and operated from its foundation in 1694, and it was nationalized in 1946.

Central bank is working as the banker of all the banks in the UK, and all the banks in the United Kingdom are working under the guidance of bank of England. Its importance has increased with the passage of time.

The Bank of England works for the development of UK. It has major importance in economy because it issues notes and coins in the country.

The role of bank of England is termed as manager of the debt of the government. It shows how much important it is to consider the services of central bank for the development of country. For this purpose of managing the government debt, the bank of England usually sell bonds and gilts to the private sector. Usually, bonds have an annuity of about 30 years. In order to motivate people to buy government debt, they need to suggest an attractive interest rate. Interest payments on UK debt amount to nearly £ 30 billion a year.

This is one of the very important roles of bank of England that it is involved in managing monetary policy. So specifically, the MPC monetary policy committee is accountable for changing interest rates, in order to keep inflation within the target of CPI 2% +/- 1 of the government. To attain this inflation goal, the MPC meets every month and observes future inflation trends. If inflation is expected to increase in future, they will vote to raise interest rates in order to dampen demand. They do not frankly set mortgage rates, but indirectly they do manipulate mortgages through the setting of interest rates.

The Bank of England, in reality, set the base rate of repo charge. This is a price at which they provide loan to the commercial banks. They try to remain the banks short of liquidity so that they often have to borrow on this repo rate. If this repo rate changes, the commercial banks typically pass the changes on to their customers by changing their individual interest rates.

Bank of England plays a vital role as lender of last resort. If the commercial banks are short of cash, they go to the Bank of England, who is capable and ready to lend them money. This is an important feature that is only handled by bank of England. It ensures the banks are never short of cash; so, people have trust on the banking system. The Bank of England controls the banking and financial system of the UK Financial stability.

The Bank of England works with many other institutions to ensure both monetary and financial stability; the institutions include HM Treasury, the Government department accounting for financial and economic policy, the Financial Services Authority and body that regulates the financial services industry and other central banks and international organizations, with the goal of improving the international financial system.

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Source by Jack Wogan