The Bank of England is the UK’s central bank. We are owned by the UK government. But we have specific statutory responsibilities for setting policy – for interest rates, for financial stability, and for the regulation of banks and insurance companies. And we carry those out, for the good of the people of the United Kingdom, within a framework set by Government but free from day-to-day political influence.
How is the Bank of England independent of the Government?
What is a central bank?
A central bank is a financial institution whose job is to support the economy for a country or group of countries. It can also be called a ‘reserve bank’ or a ‘monetary authority’.
The responsibilities of a central bank vary by country. Here at the Bank of England, we are tasked with setting interest rates at the right level, issuing banknotes, processing electronic payments and keeping an eye on possible risks in the financial system. We also provide a safe home for gold reserves belonging to the UK and other central banks. A central bank is therefore very different from a high street bank that is run for profit by making loans and looking after your money.
In which ways is the Bank of England independent of the Government?
For over 250 years, until it was nationalised in 1946, the Bank of England was a private bank owned by various shareholders.
Today, we are wholly-owned by the UK Government. And the Government appoints all of our senior policymakers. But we have independence from the Government in terms of how we carry out our responsibilities.
What does this mean?
Well first of all, Parliament has given us very specific goals and responsibilities. For each one, we have specific tools we can use to meet our objectives.
Take our target for inflation, for example. The Government sets the target – which is 2%. Independence for monetary policy – which we’ve had since May 1997 – means that we set interest rates (and ‘quantitative easing’) at what we consider to be the most appropriate level to achieve the inflation target. A committee meets to agree on these decisions eight times a year.
We have committees that make decisions about our other responsibilities, such as making sure the financial system is working properly to serve UK households and businesses.
Independence means that we can promote the good of the people of the UK by maintaining monetary and financial stability, free from political influence.
The Royal Charter of the Bank of England, 1694
The highlighted text reads ‘Now know ye, that we being desirous to promote the publick Good and Benefit of our People’. While spelling conventions have changed since 1694, today our mission is still to ‘promote the good of the people’ by maintaining monetary and financial stability.
How is the Bank of England accountable as a public body?
The Bank of England is overseen by a group of Directors, who are responsible for setting and monitoring the way we function as an organisation.
Although we are independent, we have to explain how and why we arrive at the decisions we make. And as a public body, we are answerable to both the UK parliament and public.
One way that we are held accountable is through public meetings with the House of Commons Treasury Committee. These meetings typically happen when we publish our latest reports – linked below – on the state of economy and the financial system.
These reports also explain any changes in our policies (such as interest rates) to support the economy. They are accompanied by a press conference on the day they are published, where you can watch the Governor and other senior officials answer questions on our assessment of the economy, our latest policy decisions and which factors fed into the decisions.
Find out more: