Bank of England's interest rates decision is one of the most crucial factors not only for GBP traders but also for other market players worldwide. Here are 5 BoE facts to easily learn about the central bank.

Bank of England (BoE)

The Bank of England, commonly abbreviated as BoE, is the central bank that controls the currency in the United Kingdom. This is very important because the monetary policies implemented by the bank affect the value of the Great British Pound or GBP. Therefore, understanding what the BoE does and how it influences the value of the GBP is important for your trading.

The history of BoE began in 1694 when King William III needed funds for the war against France. To meet the funding needs, the British government passed a law to establish a bank that would lend to the government.

The bank was founded on July 27, 1694, with an initial function as a private bank owned by a group of individuals, commonly known as the "Bankers of the City of London". However, over time, BoE became the official central bank of England.

One of the important moments in BoE's history occurred in 1844 when the British government passed the "Bank Charter Act". The law gave BoE the power to issue banknotes and set limits on the amount of money that could be printed. Thus, BoE functioned to limit inflation and maintain price stability in the country.

Over time, BoE continues to evolve and adapt to changes in economic and financial conditions in the United Kingdom and around the world. Currently, BoE has a very important role in maintaining economic and financial stability in the UK and setting the necessary monetary policies to achieve those goals.

Looking at the significant role of the Bank of England (BoE) in GBP exchange rates, the following facts will give you a deeper understanding of this central bank.


1. BoE's Monetary Policy Committee

The Bank of England's Monetary Policy Committee, commonly known as the MPC, consists of nine members led by the Governor of the central bank. The committee includes three Deputy Governors for Monetary Policy, Financial Stability, and Markets and Banking. In addition, there is also one chief economist and four external members appointed by the Chancellor of the Exchequer.

Each of the nine members of the BoE committee has a voting right on the monetary policy. This means that each member has an equal say in determining the direction of BoE's monetary policy. As such, the Bank of England has a democratic and transparent system for setting monetary policy. The decisions made by BoE can affect the UK economy and the global financial market. Therefore, a good understanding of the Bank of England's monetary policy is essential for market participants and the general public.


2. How BoE Sets Monetary Policy

BoE's monetary policy decisions are based on inflation rates and inflation expectations. BoE does not have a dual mandate like other central banks, as its main focus is only on price stability.

To maintain price stability and economic growth in the UK, BoE strives to ensure that the inflation rate remains below the 2% target. This provides confidence and stability in the financial market and influences investment and consumption decisions. Therefore, the 2% inflation target adopted by BoE is one of the important elements of UK monetary policy.

If inflation exceeds the 2% target, the BoE Governor must give an explanation to the Chancellor of the Exchequer. This shows that BoE operates within a strict framework of transparency and accountability. In implementing its policy, BoE uses various monetary policy tools, such as raising interest rates or tightening liquidity.

BoE also holds a meeting every six weeks or about eight times a year to discuss monetary policy. The meeting is usually held on Thursdays. After the meeting, BoE issues minutes and holds a press conference to explain the decisions made. This action increases transparency and allows market participants and the general public to understand the reasons behind BoE's monetary policy.


3. Interest Rates Determined by BoE

The types of interest rates determined by the Bank of England (BoE) are benchmark bank rates. These are interest rates set by the Bank of England for use by financial institutions when borrowing or lending money to each other. This way, financial institutions can meet their fund requirements at a particular time and help maintain the liquidity of the financial market.

Of course, this benchmark rate is different from the interest rate applied by financial institutions to the public. Changes in bank rates are determined by considering economic conditions. BoE can raise or lower rates to regulate economic growth and control inflation.


4. Key Indicators to Set Monetary Policy

In measuring inflation and inflation expectations as determinants, BoE needs the most relevant economic indicators. There are three main indicators used by BoE to measure inflation, namely the Consumer Price Index (CPI), the unemployment rate, and Gross Domestic Product (GDP).

CPI is the most important one because the inflation rate is the central bank's main focus in maintaining price stability. After that, the unemployment rate becomes another important aspect because it can affect future inflation rates and indicate the overall economic health. Finally, GDP is a prominent indicator because it reflects economic growth and the country's well-being.

For those trading GBP pairs, it is important to monitor UK's inflation rate as it can affect BoE's monetary policy. Inflation data is published monthly by the UK's Office for National Statistics (ONS).


5. Other Monetary Policy Instruments

In addition to setting the interest rate, Bank of England (BoE) also uses various monetary policy instruments to manage the UK economy. One of these is the asset purchase program. This program was initiated after the 2008 global financial crisis when BoE purchased bonds in open auctions with various participating commercial banks. By purchasing bonds, BoE can increase liquidity in the market.

In addition to the asset purchase program, BoE also considered using negative interest rates as a policy tool. This means that banks would pay interest to deposit money with the central bank. This is expected to encourage banks to lend money to customers and stimulate economic growth.



If you are a GBP trader, paying attention to BoE monetary policy and statements from MPC members is a must. Monetary policy can affect the value of GBP against other currencies, so understanding the BoE's monetary policy instruments can help you make better trading decisions.


Now that you understand the basics of Bank of England, there are more key factors to pay attention to when it comes to trade GBP. Some of them can be explored in An Admirals' Guide to Trade GBP/USD Successfully.