The Bank of England is the UK’s central bank. It began life in 1694 as a private bank set up by London merchants as a vehicle to lend money to the government and to deal with the national debt. That makes it the second-oldest central bank still in operation (the oldest is the Swedish central bank, which was set up in 1668). In 1946, it was nationalised.
It has a number of roles – including overseeing the operation of the Royal Mint, which issues sterling notes and coins – but its most important and high profile is to oversee monetary policy with the goal of maintaining financial stability in the UK.
The Bank’s specific economic target is to keep the annual rate of UK inflation (as measured by the consumer price index, or CPI rate) at, or close to 2%. The Bank’s Monetary Policy Committee (MPC) sets UK monetary policy by moving the bank rate – Britain’s key interest rate – up and down. The MPC can also supplement the economy with measures such as quantitative easing (digitally creating new money in order to buy assets such as government bonds, in order to pump more money into the financial system with the goal of boosting the economy).
• See Tim Bennett’s video tutorial: George Osborne’s £35bn raid on the Bank of England.