The Bank of England (BoE)

The central bank of the United Kingdom is called the Bank of England (also known as the BoE).

The financial entity responsible for the monetary policies of the country is the Monetary Policy Committee (MPC). It consists of nine members - a Governor, two Deputy Governors, two executive directors and four experts that come out of the organization.

In 1997 the committee gained autonomy regarding its operational activities. However, the operations it executes should be focused around the inflation target that is set by the Treasury Chancellor. The latter has set the Retail Price Index (RPIX) at 2.5%.

The major tool that the BoE uses to achieve this inflation level is the interest rates. The latter are set on the meetings that the MPC holds every month. These meetings represent a major focus of attention, because decisions on different monetary policies are taken and adjustments to interest rates are made.

After every meeting statements are issued by the MPC. These statements include reports on quarterly MPC's predictions about inflation levels for the next two years. If any changes in policy have occurred, justification for them is made in these announcements.

In addition to the quarterly Inflation Report, the Quarterly Bulletin is issued. It gives information on the monetary policy changes that has occurred in the past. It also elaborates on the international economic conditions and the way these influence the economy of the UK. These documents include information on the future policy changes that can occur.

The major goals of the BoE are:

• Currency integrity and stability
• Financial system stability
• Financial services effectiveness

Additionally, the BoE implements several tools in order to reach the inflation target levels set by the Treasury Chancellor. They are as follows:

• Bank Repo Rate

  The Bank Repo Rate represents the rate at which the BoE itself executes its own activities (e.g. short term lending). Commercial banks closely watch for any changes in this rate, since it directly influences the rates at which they deal with their clients.

  The BoE tends to increase the repo rate whenever the rates of inflation increase. Alternatively, it decreases the repo rate in order to stimulate the economy.

• Open Market Operations

  The second widely used tool of the BoE to adjust inflation levels is through open market operations. The major goal of this tool is to put the established repo rates in action and at the same time provide for the necessary liquidity in the market. It also has to be sure that the required stability level in the banking system is not put out of balance.

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