Technically granted by the Queen, although I guess it's more scientific than her sitting with a red pen and a map of the UK... every few years a town is judged to have grown enough to become a city and is granted that status following applications and a competition. The last were Wolverhampton and Brighton & Hove to mark the millennium follwed by Preston and Newport in 2002 for the Golden Jubilee.
Incidentally, I believe technically the smallest cathedral city in Britain is St David's in Pembrokeshire (1,797 inhabitants), significantly smaller than Wells... although its status was only restored in 1994.
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