An economy is a system for distributing scarce resources. It can also be defined as the social science that studies the production, distribution, and consumption of goods and services. In some countries, the government decides what to produce, how much to produce, and for whom. In others, these decisions are determined by consumer demand and the ability of businesses to supply goods and services—essentially, supply and demand.

All economies experience a long-term trend rate of growth. For example, the UK’s trend rate has been about 2% per year, although it has remained relatively flat since the financial crisis of 2008–2009. Within this framework, economies experience cycles of booms and busts. Booms are periods of rapid growth characterized by high employment and strong business and consumer confidence, while busts are periods when economic growth declines, often resulting in low employment and reduced confidence.

Both consumers and businesses play vital roles in the economy. Consumers decide what to buy and how much to spend, while businesses generate revenue by selling goods (tangible items like food or clothes) and services (such as legal advice or entertainment).

Most countries aim for several key economic objectives:

  • High but sustainable economic growth
  • Low and stable inflation (around 2%)
  • Low unemployment
  • A balanced international trade position

The Bank of England is distinct from high-street banks. Its primary role is to protect the UK economy by ensuring that banknotes are available and that electronic payments function smoothly. It also helps keep high street banks secure and sets the UK’s inflation rate (known as the “bank rate”). The Bank of England operates independently, free from political influence; this independence prevents the government from, for example, overspending before an election—a practice that could spur inflation. Notably, the Bank of England also holds more than 400,000 gold bars valued at over £100 billion.