Discuss the role that the Bank of England plays within the UK economy. :: Economics

Discuss the role that the Bank of England plays within the UK economy. The Bank of England was founded in 1694 to act upon the government as its banker and debt-manager. Since it was founded, its role has developed and evolved into what we have today, with its role centred on the management of the nations monetary unit, the pound and it is the infrastructure of the UK’s financial system. (http://www.bankofengland.co.uk/about/history/index.htm visited 27th October 2005 last updated 12th June 2002 by Anon) The history of the Bank is one of great interest in this country, but also of continuing relevance and importance to the bank today. Events that have taken place within the last three hundred years have helped to shape and influence the role and the general responsibilities of the Bank. The Bank has moulded the culture and traditions and the expertise of the Bank as a central unit to the early years of the 21st century. Much of the history of the bank runs in tandem to the financial and economic history of this country, and often too the political history of the UK more generally. There have been many key points in the history of the Bank which have guided its future in this country. In the early years the Bank system was weak in the rule of King William and Queen Mary. Over the years though, various progressions have been made with the introduction of loans, interest rates and various other things which make up the Bank today. The Bank of England is controlled by the level of interest rates it sets via the manipulation of short term interest rates. This is controlled by the Monetary Policy Committee (MPC). If the MPC think that the demand is set to rise too fast, then they will increase the interest rate, but if they think demand is growing at a slow rate, or maybe even possibly falling, they will then reduce the interest rate. This is known as the transmission mechanism. The MPC is made up of nine members. Five of them are from within the Bank of England and include the Governor and two Deputy Governors, the other four are called external members and are appointed by the Chancellor. At each monthly meeting the members vote on what they believe should happen to the interest rates. If the vote is equal, then the Governor of the Bank of England has the casting vote. There are many different internal consumer demand changes that will affect the general public. Firstly there is consumer borrowing. Many consumers use this method to borrow money in the form of credit cards