What key decisions does bank of england make regarding the economy?

The two main functions of the Central Bank are:

a) Monetary Stability - this means stability in prices and the currency - by controlling inflation. This is done by the Monetary Policy Committee of the Bof E who set the Appropriate interest rate in accordance with the government's target inflation rate. If the economy is perceived to be overheating-then interest rates will rise to dampen demand for credit-and vice versa.

b) Financial Stability - It will step in as "Lender of Last Resort" if there is a problem in the banking system e.g. with Northern Rock in 2007 and it worked flat out in 2008/9 generally but particularly with RBS and HBOS during the financial crisis.

The B of E was given independence in 1997 (interest rates) nad used to be responsible for supervision of Banks until 1998 when this was transferred to the Financial Services Authority in 1998. The B of E now works under what is called "The Tripartite Arrangement" e.g. with HM Treasury and the FSA.

This arrangement came under massive criticism following the Northern Rock Crisis (the first run on a Bank in dceades) and the subsequent calamity of losses in the UK banks.

Finally, the B of E also prints our bank notes!

Bank sets interest rates to control inflation. When inflation is expected to be above 2.5% cpi then they raise rates. Below 2.5% cpi they lower rates to stimulate demand.

At the moment interest rate transmission channel is not working as it should as banks are hoarding liquidity - so they have other mechanisms like quantitative easing.

They also do a lot of macroeconomic research and modelling which helps to inform policy decisions.