The Bank of England, despite its name, is the central bank of the whole of the United Kingdom and is the model on which most modern, large central banks have been based. It was established in 1694 to act as the banker for the UK Government, with independence in setting monetary policy. The Bank's Monetary Policy Committee has devolved responsibility for managing the monetary policy of the country. The Treasury has reserve powers to give orders to the committee, if they are required in the public interest and by extreme economic circumstances, but such orders must be endorsed by Parliament within 28 days.

The Bank of England performs all the functions of a central bank. The most important of these is maintaining price stability and supporting the economic policies of the British Government thus promoting economic growth. There are two main areas which are tackled by the Bank to ensure these functions are carried out efficiently:

Monetary stability - stable prices and confidence in the currency are the two main criteria for monetary stability. Stable prices are maintained by making sure price increases meet the Government's inflation target. The Bank aims to meet this target by adjusting the base interest rate, which is decided by the Monetary Policy Committee
Financial stability - maintaining financial stability involves protection against threats to the whole financial system. Threats are detected by the Bank's surveillance and market intelligence functions. The threats are then dealt with through financial and other operations, both at home and abroad. In exceptional circumstances, the Bank may act as the lender of last resort by extending credit when no other institution will

The Bank works together with several other institutions to secure both monetary and financial stability, including:

H M Treasury
The Financial Services Authority, which is an independent body that regulates the financial services industry
Other central banks and international organisations with the aim of improving the international financial system