Analysis of the Bank of Englands Monetary Policy Committee Decisions

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From the year 1694 onwards, Bank of England plays different roles as Government’s banker and debt manager in the UK financial system. It is also known as the Old Lady of Threadneedle Street. In addition to providing service to its customers, the bank also regulates the UK’s foreign exchange and gold reserves. Monetary stability and financial stability – the two core purposes of the bank has helped a lot in shaping the UK economy. Also, the bank maintains a Community Involvement Policy to keep a close relationship with the voluntary sector, organizations, and education business. One of the distinctive features is its cartel in issuing the banknotes. The Bank’s monetary policy objective is to deliver price stability – low inflation – and, subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the Governments inflation target of 2%. (Monetary policy framework n.d.). Price stability has an important role in the economic stability of the country and the inflation target is announced by the Chancellor of the Exchequer. After the enactment of Bank of England Act in 1998, the interest rate was set by the bank alone except in extreme conditions. In adverse situations, the Government gives instructions regarding the interest rate which is restricted for a limited period. The Bank always has to meet the inflation target which is based on the Consumer Price Index (CPI). In cases, if the annual rate of CPI inflation fluctuates over or below 2%, the Bank submits a report regarding the reasons of inflation fluctuations and the proposed solution to the Chancellor of Exchequer. The Monetary Policy Committee, which is a special committee consisting of nine members out of which 5 forms the Bank and 4 from outside take the decision regarding the interest rate. The member should be aware of the economic condition ofthe country.