The Function of the Bank of England
1. It issues notes and coins. The Bank of England is the sole issuer of notes and coins in the UK. In theory you could take a £10 note to the Bank of England and ask for you equivalent sum of Gold. I don't know whether they would take kindly to such requests but in theory that is how they maintain confidence in notes and coins as a medium of exchange
2. Managing the government's debt. National Debt in the UK At the end of 2005/6 general government debt was £529.1 billion, equivalent to 42.1 per cent of GDP. [1] To manage the government debt the bank of England sell bonds and gilts to the private sector. Usually bonds have a lifetime of about 30 years. In order to encourage people to buy government debt they need to offer an attractive interest rate. Interest payments on UK debt amount to nearly £30 billion a year
3. Managing Monetary Policy. In particular the MPC Monetary Policy Committee is responsible for changing interest rates in order to keep inflation within the governments target of CPI 2% +/-1. To achieve this inflation target the MPC meet every month and examine future inflation trends. If inflation looks to be increasing then they will vote to increase interest rates in order to dampen demand. They don't directly set mortgage rates but indirectly they do influence mortgages through the setting of interest rates.
4. The Bank of England actually set the base rate of "repo" rate. This is a rate at which they lend to the commercial banks. They keep the banks short of liquidity so that they often have to borrow on this repo rate. If this repo rate changes then the commercial banks usually pass the changes on to their customers by changing there own interest rates.
Nationwide is the largest building society in the world, with 12 million customers. We are the most popular brand within financial services and also the England football team sponsor as well as the other home nations.