Monetary Policy Committee
23 January 2022 12:00 AM

Bank of England Independence

23 January 2022

What is Bank of England independence?

The Bank of England is the UK’s central bank and is owned by the UK government. The UK government appoint all of the bank’s senior officials including its Governor.

However since a reform in 1997, the Bank of England has been independent from government in terms of how it carries out its responsibilities.

The Bank currently has responsibility for financial stability, the regulation of banks and insurance companies, and for monetary policy.

Monetary policy is the action taken by a country to determine how much money is in the economy and how much it costs to borrow. There are two principle monetary policy tools: the interest rate (the rate the banks other charge to borrow money from the Central Bank), and the creation of money to support the purchase of corporate or government bonds which is otherwise known as quantitative easing.

Monetary policy has a significant impact on the functioning of the economy as a whole, influencing growth, exchange rates, inflation, asset prices and the expectations and confidence of the market.

What is the Monetary Policy Committee?

The Bank of England’s Monetary Policy Committee (MPC) is a specialised economic advisory panel that is responsible for setting the UK’s short-term base interest rate.

The framework under which the Committee sets monetary policy is laid down by a remit letter sent annually by the Chancellor of the Exchequer to the Governor of the Bank of England..

There are nine MPC members: the Bank’s Governor, the two Deputy Governors, the Chief Economist, the Executive Director for Market Operations and four external members appointed by the Chancellor of the Exchequer. Each member has expertise in the field of economics and monetary policy. A Treasury representative attends meetings to ensure that the MPC is fully briefed on fiscal policy.

The MPC convenes and announces policy eight times a year (every 6 weeks). It considers a broad range of economic data before publicly announcing its revised decisions on interest rates. It can take as long as two years for monetary policy to feed through into the behavior in the economy so MPC members consider the economic outlook for the forthcoming years. Decisions are taken on the basis of a majority vote. The MPC also publishes a quarterly inflation report detailing prospects for the inflation rate in relation to the budget target.

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