Since its foundation in 1694 the Bank of England (the ‘Bank’) has issued notes promising to pay the bearer a sum of money. For much of its history the promise could be made good by the Bank paying out gold in exchange for its notes. The link with gold helped to maintain the value of the notes, although the link was sometimes suspended, for example in wartime.
The link with gold was finally broken in 1931 (see in particular The Currency and Bank Notes Act 1928 and The Gold Standard (Amendment) Act 1931) when the UK came off the gold standard, and since that time there has been no other asset into which holders have the right to convert Bank of England notes. They can only be exchanged for other Bank of England notes. Nowadays public faith in the pound is maintained in a different way - through the Bank of England's operation of monetary policy, the object of which, by statute, is price stability.
The Bank Charter Act 1844 and the Currency and Bank Notes Acts 1928 and 1954, provide for the establishment of a distinct Department within the Bank of England - the Issue Department – and for the issue of banknotes. This legislation also requires notes issued by the Bank to be backed by securities (the concept of securities was broadened by the Finance Act 1932 and is now reflected in the amended 1928 Act) held in the Issue Department and confers legal tender status on Bank of England notes.
Further information about banknotes.