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Discuss the role that the Bank of England plays within the UK economy

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Introduction

Discuss the role that the Bank of England plays within the UK economy. The Bank of England was founded in 1694 to act upon the government as its banker and debt-manager. Since it was founded, its role has developed and evolved into what we have today, with its role centred on the management of the nations monetary unit, the pound and it is the infrastructure of the UK's financial system. (http://www.bankofengland.co.uk/about/history/index.htm visited 27th October 2005 last updated 12th June 2002 by Anon) The history of the Bank is one of great interest in this country, but also of continuing relevance and importance to the bank today. Events that have taken place within the last three hundred years have helped to shape and influence the role and the general responsibilities of the Bank. The Bank has moulded the culture and traditions and the expertise of the Bank as a central unit to the early years of the 21st century. Much of the history of the bank runs in tandem to the financial and economic history of this country, and often too the political history of the UK more generally. ...read more.

Middle

At each monthly meeting the members vote on what they believe should happen to the interest rates. If the vote is equal, then the Governor of the Bank of England has the casting vote. There are many different internal consumer demand changes that will affect the general public. Firstly there is consumer borrowing. Many consumers use this method to borrow money in the form of credit cards or loans. As the interest rates increase, it will become less attractive to borrow at this time as repayments will be higher Next, there is consumer debt. Because of levels of borrowing at present, higher interest rates will mean higher repayment costs. This is known as debt servicing. This will leave the consumers as a whole with less surplus income to spend as this leads to a fall in demand. Mortgage debts are present because most people have to borrow to purchase a home and the payments on their property will vary based on the interest rate. Higher interest rates means higher repayments which ultimately leads to a fall in demand. ...read more.

Conclusion

(Atril, P and McLaney E Accounting and Finance for Non-Specialists fourth edition 2004 Chapter 12 p356-357) "We have been able to demonstrate that using the point and figure charts one box system, important turning point levels for UK interest rates are predictable sometimes decades in advance. The importance of interest rate setting should prioritise forecasts." (Ronald L. Giles Managerial Finance; Forward looking UK interest rates: a point and figure chart approach Volume: 31 Issue: 5; 2005 Research paper). What this is saying is that we can predict how interest rates will fall on rise based on the current state of the economy and the position it has within the world trade. If economy is doing well then we can say that interest rates will be affected in a way in which we can predict for the future. In this case they may rise but if the economy is doing poorly then they may fall in the future. To conclude with I would say that the Bank of England plays a major role in the stability of this country. Without it this country would have no financial stability to be a world player on the trade market like it is now. ?? ?? ?? ?? Sheraz Anwar 1 ...read more.

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