Managing my financial journey
Managing my financial journey

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2.3 The Bank of England – a bigger role in regulation

In the next video, Andy Haldane, chief economist at the Bank of England, talks about the Bank’s responsibility for monetary policy and the range of factors its Monetary Policy Committee takes into account when setting the level of the ‘official interest rate’ (or ‘Bank Rate’).

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Following the financial crisis, the role of the Bank of England in the oversight of the financial services sector has been enlarged.

Since 1997 the Bank of England has managed monetary policy in the UK through its Monetary Policy Committee (MPC). The MPC sets the level of the ‘official’ rate of interest (also known as Bank Rate). By setting the official rate of interest, the Bank of England is able to influence the general rates of interest applied by financial institutions. The MPC determines what official interest rate to set by reference to the aim of ensuring that economic activity in the UK is maintained at a level consistent with the achievement of the medium-term target for price inflation, as established by the government.

The prevailing medium-term target (in 2016) is an inflation rate of 2 per cent per annum as measured by the UK’s Consumer Prices Index (CPI). This focus on controlling price inflation altered to a degree in 2013 when the Canadian, Mark Carney, took over the role of the governor of the Bank of England from Sir Mervyn King. The new governor indicated that monetary policy would focus more on helping to contain and reduce unemployment. This approach was subsequently revised to a focus on the more general indicator of ‘spare capacity’ in the economy.

As you saw in Week 1, in April 2013 the Bank also took on responsibility from the FSA – via its new subsidiary, the Prudential Regulation Authority (PRA) – for the regulation of the banks and other deposit-taking institutions, investment firms and insurers.

Additionally, the Financial Policy Committee (FPC) was established to monitor the economy and to identify macro-economic and financial issues that could threaten stability. The committee, chaired by the governor of the Bank of England, addresses these potential threats to financial stability by instructing the PRA or the Financial Conduct Authority (FCA) to take regulatory action with respect to the financial firms involved. To assist in this process the PRA and the FCA produce annual Risk Outlooks that set out an assessment of the economic and financial trends in the UK as a context for regulatory decision making and the supervision of financial firms.

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