Bank of England

The Bank of England is the UK's central bank. The Bank of England was founded in 1684 and since then has acted as a government banker first to the English government and later to UK government. The bank started to act as a banker to the English banking system at the end of the 18th century. The Bank of England is the sole issuer of bank notes in England and Wales. The bank manages the UK gold reserve and is responsible for the foreign exchange reserves as well. The Bank of England is the UK's central bank, and as such it has two main objectives monetary stability and financial stability. The Bank of England works closely with HM Treasury, Financial Services Authority and often other central banks to achieve its goals of monetary and financial stability.

Monetary Stability

The first one is to maintain monetary stability. The monetary stability of a country is manifested in stable prices and high level of confidence in the country's currency. The Bank of England is responsible for setting the UK's official interest rate, in order to meet the inflation target set yearly by the Chancellor of the Exchequer. The Bank of England Monetary Policy Committee makes the interest rate decisions, and applies them through its financial market operations. The bank strives to achieve high economic growth in a low-inflation environment.

Financial Stability

The second main goal of the Bank of England is to promote financial stability in UK. When the financial stability of the UK's financial system is threatened, the Bank of England has to act to avoid it. A recent example of a threat to the stability of the UK financial system was the Northern Rock bank run, in which case the Bank of England had to act as a lender of last resort to Northern Rock.

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