20th century
Until 1931 Britain was on the gold standard, meaning the value of sterling was fixed by the price of gold. That year, the Bank of England had to take Britain off the gold standard due to the effects of Great Depression spreading to Europe.
A terrorist bombing was attempted outside the Bank of England building on 4 April 1913. A bomb was discovered smoking and ready to explode next to railings outside the building. The bomb had been planted as part of the suffragette bombing and arson campaign, in which the Women's Social and Political Union (WSPU) launched a series of politically motivated bombing and arson attacks nationwide as part of their campaign for women's suffrage. The bomb was defused before it could detonate, in what was then one of the busiest public streets in the capital, which likely prevented many civilian casualties. The bomb had been planted the day after WSPU leader Emmeline Pankhurst was sentenced to three years' imprisonment for carrying out a bombing on the home of politician David Lloyd George.
The remains of the bomb, which was built into a milk churn, are now on display at the City of London Police Museum.
During the governorship of Montagu Norman, from 1920 to 1944, the bank made deliberate efforts to move away from commercial banking and become a central bank. A later Governor, Robin Leigh-Pemberton, described it as 'a time of rapid change, in which we began to move away from the clerical traditions of 200 years [...] and to accept specialisation, mechanisation and modern management disciplines'. Economists and statisticians began to be employed at the bank in increasing number. In 1931 the 'Peacock Committee', set up to advise on organisational improvements, published recommendations which included the appointment of paid executive Directors (alongside the traditional non-executive members of the Court). It also recommended reconfiguration of the bank's traditional departmental structures.
The work of the bank had significantly increased since the end of the First World War, and the decision was taken to expand. Between 1925 and 1939 the bank's headquarters on Threadneedle Street were comprehensively rebuilt by Herbert Baker. (This involved the demolition of most of Sir John Soane's buildings, an act described by architectural historian Nikolaus Pevsner as "the greatest architectural crime, in the City of London, of the twentieth century".) Initially the plan had been to retain Soane's banking halls behind the curtain wall, but this proved challenging so they were instead demolished and rebuilt in facsimile. The demolition and rebuilding took place in stages, with staff moving from one part of the building to another (or, in some cases, into temporary accommodation at Finsbury Circus). The bullion and securities remained on site throughout. During reconstruction human remains pertaining to the old churchyard of St Christopher le Stocks were exhumed and reburied at Nunhead Cemetery.
Baker's steel-framed building stands seven storeys high, with a further three vault storeys extending below ground level. It is decorated with sculpture and bronze work by Charles Wheeler, plasterwork by Joseph Armitage, and mosaics by Boris Anrep. The bank today is a Grade I listed building.
1939 saw the introduction of Exchange Controls in the United Kingdom at the outbreak of the Second World War; these were administered by the bank. During WWII, over 10% of the face value of circulating Pound Sterling banknotes were forgeries produced by Germany.
A number of the bank's operations and staff were relocated to Hampshire for the duration of the war, including the printing works (which moved to Overton), the Accountant's Department (which went to Hurstbourne Park) and various other offices. Those who remained at Threadneedle Street, including the Directors, moved their offices into the underground vaults.
In 1946, shortly after the end of Montagu Norman's tenure, the bank was nationalised by the Labour government. At the same time the number of Directors was reduced to sixteen (four of whom were full-time Executive Directors).
The bank pursued the multiple goals of Keynesian economics after 1945, especially "easy money" and low-interest rates to support aggregate demand. It tried to keep a fixed exchange rate and attempted to deal with inflation and sterling weakness by credit and exchange controls.
After the war, the very large Accountant's Department (which managed the stock side of the bank) moved back to London from Hampshire. Its designated office-space at Threadneedle Street, however, had in the meantime been taken over by the Exchange Control office. The department was instead provided with temporary accommodation (once more in Finsbury Circus), pending construction of a new building, which would occupy a 0.8 hectares (2 acres) bombsite immediately to the east of St Paul's Cathedral. 'Bank of England New Change' was designed by Victor Heal, and opened in 1957 (at the time it was London's biggest post-war rebuilding project); the new building contained several staff amenities alongside the office accommodation and, at street level, retail units were let to an assortment of businesses. The bank had the building on a 200-year lease; but with the advent of computerisation staff numbers were drastically reduced in the 1980s-90s; parts of the building were let to other firms (most notably the law firm Allen & Overy). The bank sold the building in 2000 and in 2007 it was demolished; One New Change now stands on the site.
The bank's "10 bob note" (10 shilling note) was withdrawn from circulation in 1970 in preparation for Decimal Day in 1971.
In 1977 the bank set up a wholly owned subsidiary called Bank of England Nominees Limited (BOEN), a now-defunct private limited company, with two of its hundred £1 shares issued. According to its memorandum of association, its objectives were: "To act as Nominee or agent or attorney either solely or jointly with others, for any person or persons, partnership, company, corporation, government, state, organisation, sovereign, province, authority, or public body, or any group or association of them". Bank of England Nominees Limited was granted an exemption by Edmund Dell, Secretary of State for Trade, from the disclosure requirements under Section 27(9) of the Companies Act 1976, because "it was considered undesirable that the disclosure requirements should apply to certain categories of shareholders". The Bank of England is also protected by its royal charter status and the Official Secrets Act. BOEN was a vehicle for governments and heads of state to invest in UK companies (subject to approval from the Secretary of State), providing they undertake "not to influence the affairs of the company". In its later years, BOEN was no longer exempt from company law disclosure requirements. Although a dormant company, dormancy does not preclude a company actively operating as a nominee shareholder. BOEN had two shareholders: the Bank of England, and the Secretary of the Bank of England.
The reserve requirement for banks to hold a minimum fixed proportion of their deposits as reserves at the Bank of England was abolished in 1981. The contemporary transition from Keynesian economics to Chicago economics was analysed by Nicholas Kaldor in The Scourge of Monetarism.
The handing over of monetary policy to the bank became a key plank of the Liberal Democrats' economic policy for the 1992 general election. Conservative MP Nicholas Budgen had also proposed this as a private member's bill in 1996, but the bill failed as it had the support of neither the government nor the opposition.
The UK government left the expensive-to-maintain European Exchange Rate Mechanism in September 1992, in an action that cost HM Treasury over £3 billion. This led to closer communication between the government and the bank.
In 1993, the bank produced its first Inflation Report for the government, detailing inflationary trends and pressures. This annually produced report remains one of the bank's major publications. The success of inflation targeting in the United Kingdom has been attributed to the bank's focus on transparency. The Bank of England has been a leader in producing innovative ways of communicating information to the public, especially through its Inflation Report, which many other central banks have emulated.
The bank celebrated its three-hundredth birthday in 1994.
In 1996, the bank produced its first Financial Stability Review. This annual publication became known as the Financial Stability Report in 2006. Also that year, the bank set up its real-time gross settlement (RTGS) system to improve risk-free settlement between UK banks.
On 6 May 1997, following the 1997 general election that brought a Labour government to power for the first time since 1979, it was announced by the Chancellor of the Exchequer, Gordon Brown, that the bank would be granted operational independence over monetary policy. Under the terms of the Bank of England Act 1998, which came into force on 1 June 1998, the bank's Monetary Policy Committee (MPC) was given sole responsibility for setting interest rates to meet the Government's Retail Prices Index (RPI) inflation target of 2.5%. The target has changed to 2% since the Consumer Price Index (CPI) replaced the Retail Prices Index as the Treasury's inflation index. If inflation overshoots or undershoots the target by more than 1% the Governor has to write a letter to the Chancellor of the Exchequer explaining why, and how he will remedy the situation.
Independent central banks that adopt an inflation target are known as Friedmanite central banks. This change in Labour's politics was described by Skidelsky in The Return of the Master as a mistake and as an adoption of the rational expectations hypothesis as promulgated by Alan Walters. Inflation targets combined with central bank independence have been characterised as a "starve the beast" strategy creating a lack of money in the public sector.
in June 1998 responsibility for the regulation and supervision of the banking and insurance industries was transferred from the bank to the Financial Services Authority. A memorandum of understanding described the terms under which the bank, the Treasury, and the FSA would work toward the common aim of increased financial stability. (Ten years later, however, after the 2008 financial crisis, new banking legislation transferred the responsibility for regulation and supervision of the banking and insurance industries back to the Bank of England).
