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The paper for Bank of England notes is made by a specialist paper manufacturer. It is manufactured from cotton fibre and linen rag, which makes it tougher and more durable than the more common wood pulp paper. Using copious amounts of water, the cotton is broken down into individual fibres and reformed into reels of paper of the quality required.
The watermark design is engraved in wax and, like the metallic thread, the image is incorporated into the paper at the manufacturing stage.
http://www.bankofengland.co.uk/banknotes/about/production.htm
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What material is used to make Australia's currency notes?
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