Issue Department

ACCOUNT FOR THE YEAR ENDED 28 FEBRUARY
	Notes	20XX	20XX
		£m	£m
Income and profits:
Securities of, or guaranteed by, the British Government		838.9	1,012.9
Other securities		441.3	336.5
Other income		0.3	0.4
		1,280.5	1,349.8
Expenses:	2
Cost of production of Bank of England notes		38.8	32.6
Cost of issue, custody and payment of Bank of England notes		20.1	19.2
Other expenses		3.3.	3.6
		62.2	55.4
Payable to HM Treasury		1,218.3	1,294.4
STATEMENT OF BALANCES: 28 FEBRUARY 1997
	Notes	20XX	20XX
		£m	£m
Assets
Securities of, or guaranteed by, the British Government	3	10,374.0	9,633.2
Other securities and assets including those acquired under reverse repurchase agreements	4	11,646.0	10,026.8
Total assets		22,020.0	19,660.0
Liabilities
Notes issued:
In circulation	5	22,010.8	19,648.0
In Banking Department		9.2.	12.0
Total Liabilities		22,020.0	19,660.0

Text B

The Value of Money

The first objective of any central bank is to safeguard the value of currency, in terms of what it will purchase at home and in terms of other currencies. Monetary policy is directed to achieving this objective and to providing a framework for non-inflationary economic growth. As in most other developed countries, monetary policy operates in the UK mainly through influencing the price of money - in other words, the rate of interest.

The price stability objective is made explicit in the present monetary policy framework, which has been in place since the UK left the Exchange Rate Mechanism of the European Monetary System in the autumn of 1992. It has two main elements: first, a medium-term inflation target, set by the Government, of 2S% or less; and second, a commitment to a more open policy-making regime.

Setting monetary policy - deciding on the level of interest rates necessary to meet the inflation target - is a matter for the Bank and the Treasury. Unlike some central banks, the Bank cannot act independently of government. The 1946 Bank of England Act gives the Treasury the power to issue directions to the Bank and, although it has never formally exercised its powers, the relationship is clearly understood to be one in which the Chancellor of the Exchequer takes the final decisions on interest rates. Nonetheless, the Bank plays an important role in advising the Chancellor and is closely involved in the decisions. As part of the Government's move to increase public scrutiny of policy making, the Bank now publishes a quarterly Inflation Report, which provides a detailed analysis of inflation and gives an independent assessment of prospects for inflation relative to the target. The monthly meetings between the Governor and the Chancellor to review the level of interest rates have been put on a formal footing, and the minutes, which include the Governor's advice, are now published six weeks after the meetings take place.

Once policy is decided, the Bank implements it by means of its operations in the financial markets described below. Although the decision on whether, and by how much, to change interest rates is the Chancellor's, the Bank has discretion over the precise timing of the changes. Unless there is a compelling reason to delay, the Bank will act sooner rather than later.