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— CH. 1 · FOUNDING AND EARLY HISTORY —

Bank of England

~5 min read · Ch. 1 of 6
6 sections

  • In 1694, the English government needed £1.5 million to rebuild its Royal Navy after a crushing defeat by France at the Battle of Beachy Head in 1690. The state lacked credit and could not borrow the necessary funds through traditional means. William Paterson proposed a public bank that would lend money to the government in exchange for interest payments and exclusive rights to issue banknotes. Parliament passed the Tonnage Act 1694 on the 27th of July, granting the charter to the Governor and Company of the Bank of England. Within twelve days, 1,268 subscribers raised the full £1.2 million required. King William III and Queen Mary invested the maximum permitted sum of £10,000 each. John Houblon became the first Governor, while Michael Godfrey served as Deputy Governor. The initial staff consisted of seventeen clerks and two doorkeepers. Most original investors were from the mercantile middle classes, though twelve percent were women. The bank opened its doors on the 1st of August 1694 inside Mercers' Hall on Cheapside before moving to Grocers' Hall later that year.

  • The bank moved to Threadneedle Street in 1734, occupying a narrow plot behind Sir John Houblon's former house and garden. George Sampson designed the first permanent building with a Pay Hall where notes were exchanged and deposits handled. Robert Taylor expanded the complex between 1765 and 1786, adding east and west wings that doubled the footprint. He demolished St Christopher le Stocks churchyard in 1782 to allow further expansion westward along the street. A new four-storey Library rose north of Bullion Court to house expanding archives. During the Gordon Riots of June 1780, rioters climbed the church to throw projectiles at the bank buildings. Soldiers formed the Bank Picquet guard nightly until 1973 to protect the institution. Herbert Baker led a comprehensive rebuild between 1925 and 1939, demolishing most of Sir John Soane's earlier structures. The resulting steel-framed building stands seven storeys high with three vault levels below ground. Charles Wheeler created bronze sculptures for the exterior while Joseph Armitage crafted plasterwork inside. Boris Anrep contributed mosaics throughout the interior spaces. Human remains from the old churchyard were exhumed and reburied at Nunhead Cemetery during construction.

  • Montagu Norman served as Governor from 1920 to 1944, steering deliberate efforts away from commercial banking toward central bank functions. Economists and statisticians began joining the workforce in increasing numbers after World War I. The Labour government nationalised the bank in 1946 shortly after Norman's tenure ended. Sixteen Directors remained, including four full-time Executive Directors. In September 1992, the UK left the European Exchange Rate Mechanism, costing HM Treasury over £3 billion. This crisis prompted closer communication between the government and the bank. Gordon Brown announced on the 6th of May 1997 that operational independence would be granted over monetary policy. The Bank of England Act 1998 came into force on the 1st of June 1998, establishing the Monetary Policy Committee. The committee gained sole responsibility for setting interest rates to meet a Retail Prices Index inflation target of 2.5 percent. Responsibility for regulating banking and insurance industries transferred to the Financial Services Authority in June 1998. Ten years later, new legislation returned regulatory powers to the bank following the 2008 financial crisis. Andrew Bailey succeeded Mark Carney as Governor on the 16th of March 2020.

  • The Monetary Policy Committee decides the base interest rate known as the bank rate to maintain stable prices. As of 2024, the inflation target stands at 2 percent measured by the Consumer Price Index. If inflation overshoots or undershoots the target by more than 1 percent, the Governor must write an open letter explaining the situation to the Chancellor of the Exchequer. Quantitative easing serves as another primary tool available to manage monetary conditions. The Asset Purchase Facility began operating in January 2009 to buy high-quality assets financed by Treasury bills. By March 2009, this mechanism enabled quantitative easing policies through purchasing government bonds on secondary markets. The portfolio reached £895 billion at its peak in 2020, comprising £875 billion of UK government bonds and £20 billion of commercial bonds. Six tranches enacted between 2009 and 2020 aimed to ease liquidity constraints initially before evolving into broader economic stimulus. In February 2022, the bank announced intentions to wind down the portfolio through active bond sales. Between February and September 2022, £37.1 billion of government bonds matured, reducing outstanding stock from £875 billion to £837.9 billion.

  • The Prudential Regulation Authority emerged in 2011 to supervise all major banks, building societies, credit unions, insurers, and investment firms across the United Kingdom. This microprudential regulation focuses on individual institution safety rather than systemic risks. The Financial Policy Committee formed simultaneously to identify and monitor macroeconomic threats within the financial system. It publishes biannual Financial Stability Reports detailing findings and actions taken. During the 2008 crisis, safeguards were established to protect savers, investors, and borrowers against whole-system failures. Surveillance and market intelligence functions detect emerging threats both domestically and internationally. The bank acts as lender of last resort by extending credit when no other institution will provide it. Commercial banks maintain sizeable cash reserves at the Bank of England to settle payments with one another. Real-time gross settlement systems like CHAPS handle around £500 billion worth of daily transactions between banks as of 2024. Under the Banking Act 2009, the bank serves as Resolution Authority for institutions deemed too big to fail. These powers allow intervention during bank failures to protect vital financial services and overall stability.

  • Handwritten notes dated 1697 bear signatures from Cashier Robert Hedges alongside Governor and Company endorsements. Partial printing began in 1725 while full mechanical production started only after 1855. Henry Portal supplied high-quality paper from Whitchurch, Hampshire starting in 1724 under contract terms. Private firms handled initial printing operations until 1791 when work moved inside bank premises. Full in-house control arrived in 1808. White Notes printed in black ink dominated circulation until 1928 when colour was introduced. Treasury notes featuring King George V appeared temporarily during World War I before returning note-issuing powers to banks in 1928. German Operation Bernhard counterfeited denominations between £5 and £50 during World War II, producing 500,000 notes monthly by 1943. Prisoners at Sachsenhausen concentration camp executed these forgeries intended to destabilise the British economy. Most fell into Allied hands but continued appearing years afterward, leading to removal of higher denominations from circulation. Over £53 million stolen from a Tonbridge depot in Kent in 2006 highlighted ongoing security challenges. Modern notes now print through contracts with De La Rue Currency in Loughton, Essex.

Common questions

When was the Bank of England founded and how much money did it raise initially?

The Bank of England opened its doors on the 1st of August 1694 after raising £1.2 million from 1,268 subscribers within twelve days.

Where is the current headquarters of the Bank of England located and when did it move there?

The Bank of England moved to Threadneedle Street in 1734 where a steel-framed building seven storeys high now stands following a rebuild between 1925 and 1939.

Who became Governor of the Bank of England on the 16th of March 2020 and what happened before him?

Andrew Bailey succeeded Mark Carney as Governor on the 16th of March 2020 after Montagu Norman served from 1920 to 1944 and Gordon Brown granted operational independence in May 1997.

What interest rate target does the Monetary Policy Committee set for the Bank of England as of 2024?

As of 2024 the inflation target for the Bank of England stands at 2 percent measured by the Consumer Price Index with a requirement for open letters if overshooting or undershooting exceeds 1 percent.

When was the Prudential Regulation Authority established and what institutions does it supervise?

The Prudential Regulation Authority emerged in 2011 to supervise all major banks, building societies, credit unions, insurers, and investment firms across the United Kingdom.

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All sources

127 references cited across the entry

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  101. 102webSale of Bank Note PrintingBank of England
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  103. 104webRe: Freedom of Information Act 2000: Bank of England Unnamed 3% Stock Holding Not RedeemedPaul Morran — 15 October 2009
  104. 105newsMark Carney named new Bank of England governor26 November 2012
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  108. 109webAsset Purchase FacilityBank of England
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  116. 117webBanknote ProductionBank of England
  117. 118webWildlife to replace historical figures on banknotes2026-03-11
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  122. 124webSebastian Walsh (Secretary of the Bank)
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  124. 126webBen Stimson – Chief Operating Officer
  125. 127webBank of England appoints Sarah John as its new COO12 March 2025
  126. 128webExecutive Directors
  127. 129newsBank of England appoints Huw Pill as chief economistLarry Elliott — 1 September 2021