Bank of England Reading Notes

Key:

Introduction to the Bank of England

Read the information on this page and answer the following:

1. Describe the Bank of England's two core purposes:
   1. Monetary Stability
   2. Financial Stability

What does the Bank of England Do?

Watch the video "What is the Bank of England?" and answer the following questions:

2. How is a central bank, like the Bank of England, different from a high street bank?
   1. They don’t hold accounts or make loans the public.
3. What does the Bank of England Do?
   1. There are 3bn notes in circulation worth £60bn. They set the official interest rates for the United Kingdom (bank rate).
4. What is directly influenced by the bank rate?
   1. The cost of savings, loans, and mortgage rates.

Read the information on this page and answer the following:

5. Describe the four main functions of the Bank of England as described on this page.

What are interest rates?

Watch the video "Why do interest rates matter to me?" The video mentions how changing interest rates will affect the following three groups:

• Households with mortgage payments
• Households using credit cards
• Households that rely on savings income

6. What will be the effect of low interest rates on each of these three groups?

Read the information on this page and answer the following:

7. Explain what an interest rate is
8. Explain how interest rates affect both borrowers and savers.
9. Explain what the ‘bank rate’ is.

The Bank of England and Gold

Look at the information on this page and answer the following questions:

10. How much gold is held at the Bank of England?
    1. The Bank holds around 400,000 bars of gold worth £200bn.
11. Was gold ever stolen from the Bank of England?

Watch the video “The Bank of England and Gold” and answer the following questions:

12. Who are the main customers that hold gold bars at the Bank of England?
    1. The UK Government, Banks, and other Governments around the world
13. How many bars in the vault are owned by the Bank of England?
    1. Two

Watch the video “Rare look inside Bank of England’s gold Vaults” and answer the following questions:

14. Why would people want to invest in gold? Why is it so valuable?
    1. Because it is rare as it is in limited supply; you can’t just keep making more gold. This makes it a good store of value. Because it’s globally recognised and people always want gold there is a good market for it. Its value doesn’t change as much as currencies, and it is more durable than other commodities such as chocolates.
15. Why is gold from the USA formed as bricks rather than a trapezoid?
    1. Because gold from the USA is stored in New York City. Because it’s built on bedrock, they can stack more gold on top of each other. London is built on clay, so there are limits to how much gold can be stacked up.

Monetary Policy

Read the information on this page and answer the following:

16. What is monetary policy?
    1. Monetary policy is action that a country's central bank or government can take to influence how much money is in the economy and how much it costs to borrow.
17. What are the two tools the Bank of England has to set monetary policy?
    1. Setting the interest rate and quantitative easing.
18. What are the objectives of monetary policy?
    1. The primary objective is to keep inflation at 2%. Beyond that, they support the government’s objectives of economic growth and employment.
19. What are the current figures for the Bank Rate and the Inflation Rate?
    1. (April 2021): Bank Rate: 0.1%. Inflation rate: 0.7%
20. What is the Monetary Policy Committee and how do they decide what action to take?
    1. The MCP has nine members. They meet eight times a year. They analyse the most recent economic data and then vote on how monetary policy should be set. This decision is agreed and then announced at 12noon on Thursday of that week.
21. How long does it take for monetary policy to have its full effect on the economy?
    1. Two years.

The 2% inflation target

Read the information on this page and answer the following:

22. What is the current inflation rate and how does this compare to the target rate?
    1. (April 2021): Inflation rate of 0.7%. This is below the target rate of 2%.
23. Why is it bad if inflation is too high or too low?
    1. If it is too high, it’s hard for businesses to set prices and hard for people to plan their spending. If it’s too low, people expect prices to fall and put off spending, meaning companies fail and people lose their jobs.
24. What does the Bank of England have to do if they don’t meet their inflation target?
    1. They must write to the chancellor of the exchequer and explain why.