Kavan Choksi Professional Investor Offers an Introduction to the Bank of England (BoE)

Bank of England (BoE) was founded in 1694 as a private bank to raise funds for the government. It began issuing bank notes in England and Wales in 1844. The bank was nationalized in the year of 1946, following the World War II. As Kavan Choksi Professional Investor mentions, the government transferred its authority over to the BoE’s Monetary Policy Committee (MPC) in 1997, after which it became responsible for setting the UK’s benchmark interest rate.  MPC is the body in charge of setting monetary policy in the United Kingdom and has a goal of meeting the government’s 2% inflation target to sustain growth and employment. as well as what are the preferred payment methods of shoppers. For example, a retailer may enjoy increased sales after introducing a new financing option during a recession.

Kavan Choksi Professional Investor briefly discusses the functions of the Bank of England

The Bank of England is the central bank of the United Kingdom, and has many important functions. Its functions include overseeing monetary policy, issuing currency and supervising payment services, regulating UK banks and other financial firms, as well as maintaining a resilient UK financial system. Managing the state of the economy and maintaining price stability are among the key functions of the Bank of England, and it strives to achieve this goal it’s MPC. While the mandate of keeping the annual inflation rate at 2%, the BoE is independent in its decision making. The MPC manages inflation by setting the core interest at which it lends money to the banks, and also by purchasing or selling assets.

The MPC convenes 8 times a year in order to set interest rates. Subsequent to a number of preliminary meetings, the nine members of the committee vote on whether to increase, reduce or hold interest rates. Increasing interest rates, also referred to as tightening monetary policy, tend to be designed for reducing inflation by making borrowing more expensive and giving people less money to spend, ultimately lowering demand. In case the Bank of England cuts the interest rates, also known as loosening or easing policy, borrowing becomes cheaper. In this situation, people would be inclined to spend more, which can be helpful in boosting the economy but may push prices up.

As Kavan Choksi Professional Investor mentions, the Bank of England may even provide economic stimulus through asset purchases. This policy is called quantitative easing (QE). In such a situation, BoE buys government bonds and other securities on the open market, thereby providing banks with more liquidity. This results in lowered interest rates, and helps banks to lend with easier terms. Retailers should try to focus more on products that are high in demand but have a low price point, while also providing high-end items for less price-sensitive consumers. Appealing to a large group of audience can be advantageous, particularly during a recession. Retailers should try to add new products or services that are recession-proof, like specific essential goods that consumers would always need. Such items tend to be in demand no matter the economic landscape.

Announcements made by the BoE’s Monetary Policy Committee have a considerable impact on the financial markets. After all, any changes in the interest rates shall impact the value of bonds, indices stocks, currency pairs and other securities. The majority of traders try to predict what the MPC will decide so that they can change their positions ahead of the announcement and minimize risks or even make a profit. For instance, in case the MPC decides to increase interest rates, the value of the pound may go up and lower the value of stocks, bonds, indices and other securities. On the other hand, if they opt to lower interest rates, GBP may fall in value and cause other asset classes to rise.

Related Articles

Leave a Reply

Back to top button