The Bank of England and its controversial approaches

In 1694, at the initiation of Scotsman William Paterson and with the approval of the new Dutch king of England, William III, a new joint-stock company, the Bank of England was formed.

The nation's finances had no real system of money or credit. The Bank was formed to help finance the government's borrowing. 

The Bank of England is the second oldest central bank in the world after the Swedish Riks bank, which was founded in 1668.

The Bank of England is famous as the old lady of Thread needle Street, is the government's bank and the United Kingdom's central bank.

It issues bank notes, controls the UK gold reserves and, since 1997, has set official interest rates.

The Bank was initially established as a commercial operation but later also secured large government accounts, becoming the government's banker and debt manager.

Key defining moments in the development of the Bank:

Afterenduring the South Sea Bubble crash of the 1720s, it developed into "the lender of last resort” when many smaller banks went to it to be bailed out.

When the Bank came under threat from a mobduring the Gordon Riots of 1780, the government established an overnight military guard for security, known as the “picquet” and drawn from the Coldstream Guards, which existed until 1973.

The Bank Charter Act granted the Bank a monopoly to print banknotes in England and Wales in 1844.

The Bank helped manage government borrowing during the World War I.

The Attlee government nationalized it in 1946 by making it more of an instrument of government.

In 1997 the chancellor Gordon Brown, gave the Bank operational independence, efficiently assigning the power to set interest rates to it.

In 2013 Canadian Mark Carney a foreigner was appointed as Governor at the Bank of England.

Plastic £5 note

New plastic £5 note was introduced in September 2016which was more durable than the previous one.

The new note is estimated to last an average of five years.

However, the Bank of England’s new plastic five pound note was fallen foul of vegans and members of the UK’s Sikh and Hindu populations.

The controversy was over the use of animal fat in its production. The process involves a small amount of tallow and is derived from animal waste products.

The revelation has caused an online petition calling for the note to be banned.

It’s gathered more than 100,000 signatures.

The controversial note hadalso triggered a storm on various social media platforms.

The Bank later claimed it was unaware of the traces of tallow when it signed the production contract with supplier.

The Bank of England declared that it won't pull its new plastic banknotes from circulation following controversy over the use of animal fat in their production.

10-pound note featuring Jane Austen

In September 2017 new 10-pound note featuring Jane Austen had created controversy, extending from the choice of her photo, to the quote on the bill. 

The 10-pound note which replaced the image of naturalist Charles Darwin with that of early-19th century novelist Jane Austen, was the first to include a tactile feature to help the visually impaired had drawn controversy from the start.

It was the only BOE banknote with a woman on the reverse—although the queen appears on the front of all notes as the sovereign.

Few of the campaigners who pushed for a female-figure had faced harassment and online abuse.

The selected 1870 image of Austen was referred as an “airbrushed makeover".

The choice of a quote selected from her book Pride and Prejudice had also drawn fire. It is said by a character that actually had no interest in reading at all.

At the time of the controversy, the BOE had already produced 275 million of the new tenners at a cost of £24 million.

It has since said that it is considering alternative materials for when it conducts future print runs and releases a new £20 note in 2020.

Raised interest rates:

In November 2017, the Bank of England's (BOE) Monetary Policy Committee (MPC) voted 9-0 to keep its monetary policy unchanged.

The MPC's policy stand was controversial, especially in the middle of intensified U.K. inflation.

The BOE raised rates for the first time in nearly a decade from 0.25 percent to 0.5 percent.

After the bank proposed rate increases would be very gradual and limited going forward,the pound dropped.

The weeks after that had seen rocky fluctuations for the currency amid challenging Brexit negotiations.

The focus then moved to inflation, which is at a five-and-a-half-year high, put pressure on the bank to raise interest rates in order to controlescalating living costs.

The unanimously vote to maintain rates and quantitative easing reflected a desire to cover a brittle British economy wounded by Brexit uncertainty.

In late November 2017 consumer price index (CPI) rate was at 3.1 percent, highest since March 2012 and well above the bank's target inflation rate of 2 percent.

Worst case Brexit scenario

The Bank of England generated a controversy in November 2018 after publishing analysis of its ‘worst case Brexit scenario’. This was only 13 days before a critical Parliamentary vote on Prime Minister Theresa May’s deal.

The controversy was ignited when Governor Mark Carney divulged the Bank’s latest ‘stress test’.

This was assessment of the UK’s ability to withstand dramatic economic shocks, which included “a confused Brexit”.

In this situation, there would be no transition deal, the imposition of tariffs, chaos at the border and an intense rise in interest rates.

This development assumed that neither the UK nor EU would take any modifying action.

The Bank suggested there would be a hit to GDP of eight per cent, rising unemployment and a house price crash of 30 per cent.

The analysis indicated the deal May had struck with the EU would be the least-damaging Brexit outcome for the UK economy.

Bank of England voted not to raise interest rates

In December 2018,the Bank of England voted not to raise interest rates.

In the weaker global growth scenario, the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.75%.

This reduced the Bank’s growth forecast to 0.2% in the final quarter of 2019.

The Bank warned a lack of clarity around Brexit, combined with a slowing global economy and weaker outlook for the eurozone is hurting the UK economy immensely.

This meant that businesses are investing less, and will continue to do so for months to come.