Who Really Controls the Bank of England? - Why the UK Government Says It's "Independent" — Even Though It Owns It

18th October 2025

If you've ever watched a British politician on TV say "the Bank of England is independent," you might have wondered - How can that be true when the government owns the Bank?.

After all, the Bank of England is a public institution fully nationalised after World War II and, in theory, the government could tell it what to do. So why do politicians keep insisting it's "independent"?.

The answer lies in a mix of economics, politics, and history — and understanding it helps explain how money, inflation, and political power interact in Britain today.

A Bank That Belongs to the State

Let's start with a simple fact:
The Bank of England is 100% owned by the UK government.

When the Labour government of Clement Attlee nationalised the Bank in 1946, it transferred all private shares to the Treasury. Since then, the Bank has officially been part of the state the government’s banker, debt manager, and lender of last resort.

So yes, the Bank of England belongs to the government.
But since 1997, it has been operationally independent which is where the confusion begins.

What "Independence" Really Means

When politicians or economists talk about an “independent central bank,” they don’t mean it’s politically sovereign or legally separate from the state.

They mean it’s independent in its day-to-day operations — especially in deciding interest rates and managing monetary policy.

Here’s how it works:

The government sets the Bank’s overall goals (for example, to keep inflation at 2%).

The Bank’s Monetary Policy Committee (MPC) decides how to achieve those goals, without ministers telling them what to do.

This system was created in 1997, when Chancellor Gordon Brown gave the Bank control over interest rates through the Bank of England Act 1998.

Before that, the Chancellor directly set interest rates and often did so for political reasons. Governments would lower rates before elections to boost the economy, only to raise them again later when inflation took off. The result was instability and mistrust.

By making the Bank independent, Brown hoped to make economic management more credible, more stable, and less political.

A Short History of Control and Independence

To understand how we got here, it helps to look at how the Bank’s role has evolved over the centuries.

1. 1694-1946: A Private Bank Serving the Government

The Bank of England was founded in 1694 as a private company to lend money to the government. For over 250 years, it was owned by private shareholders and run largely in the interests of the City of London.

2. 1946: Nationalisation

After WWII, the Attlee government nationalised the Bank. From then on, it worked directly for the Treasury. The Chancellor decided interest rates; the Bank merely implemented policy.

The 1946 Act even gave the government explicit power to “give directions” to the Bank “if required in the public interest.”
In other words, the Chancellor could simply order the Bank to act.

3. 1970s-1980s: Political Manipulation and Instability

Throughout the 1970s, interest rate decisions were openly political. Chancellors often slashed rates before elections to create short-term growth, even if it stoked long-term inflation.

The result was economic chaos — high inflation, devaluations, and IMF intervention. It became clear that letting politicians pull the levers of money directly wasn’t sustainable.

4. 1992: The ERM Crisis

In 1992, Britain’s attempt to keep the pound fixed in the European Exchange Rate Mechanism ended in disaster. The Treasury (not the Bank) tried to defend the currency by raising interest rates from 10% to 15% in one day — and still failed.
That humiliation destroyed the government’s credibility on economic management.

This experience helped convince many, including Gordon Brown, that monetary decisions should be insulated from political pressure.

5. 1997: Independence at Last

When Labour came to power in 1997, Brown announced that the Bank would be free to set interest rates without political interference.

From that point, the Monetary Policy Committee (MPC) — made up of Bank officials and outside economists — would decide how to keep inflation on target.
The government would still define the target, but not the means.

This became known as “operational independence.”

When Independence Gets Blurry

In theory, this separation keeps politics out of money.
In practice, things aren’t always so clear-cut.

The 2008 Financial Crisis

During the global financial meltdown, the Bank worked hand in glove with the Treasury — cutting rates, rescuing banks, and creating new money through quantitative easing (QE).
Technically independent, but in reality, it was coordinating closely with the government to save the economy.

The COVID Pandemic

The pattern repeated in 2020.
The Bank massively expanded QE, buying hundreds of billions of pounds in government bonds just as the Treasury borrowed record amounts to fund furlough and stimulus schemes.

Many economists argued that, while the Bank was nominally independent, it was effectively financing government spending — something it would never admit openly.

Post-2022: Inflation and Political Tension

When inflation surged after the pandemic, the Bank raised rates sharply — and politicians started criticising it for being “too slow” or “out of touch.”

Meanwhile, some MPs began questioning whether independence still makes sense when the Bank’s actions directly affect mortgages, debt costs, and the wider economy.

The Truth About “Independence”

So here’s the paradox:

The UK government owns the Bank of England.

It sets the Bank’s objectives, appoints its leaders, and could legally overrule it in an emergency.

Yet, for credibility and stability, it chooses not to interfere in the Bank’s operational decisions.

Independence exists by convention, not by law of nature. It lasts only as long as politicians and markets believe it should.

In fact, under the 1998 Act, the Treasury still has a reserve power to direct the Bank “if required in the public interest.” It’s never been used — but it exists.

Why Governments Keep the Illusion

So why do politicians keep insisting the Bank is independent?

Credibility:
Markets and investors trust that inflation won’t be manipulated for short-term political gain.

Political Cover
If interest rates rise or inflation bites, ministers can say, “That’s the Bank’s job, not ours.”

Stability
It signals to the world that Britain runs its economy by rules, not whims.

In other words, independence is a useful fiction: technically fragile, but politically powerful.

The Real Relationship

Think of it like this:
The government and the Bank of England are two sides of the same coin.

The government runs fiscal policy — taxes and spending.

The Bank runs monetary policy — interest rates and money supply.

They’re separate enough to keep markets calm, but close enough to coordinate in a crisis.

When push comes to shove, the government is still in charge but it just prefers to keep the Bank at arm’s length until things get messy.

The Bank of England’s independence isn’t an unshakable truth it’s a political choice, born out of the failures of the past.

The government owns the Bank, could direct it tomorrow if it wished, and occasionally leans on it in crises.

But as long as independence keeps inflation expectations stable, markets calm, and blame deflected, don’t expect any government to give up the illusion. No surprise there then.