Bank of England fires new warning over Brexit threats

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The UK still faces a litany of risks after the Brexit vote in “challenging” times ahead for the financial system, the Bank of England has warned.

Threadneedle Street’s Financial Policy Committee poured cold water on recent upbeat economic news and the relative resilience of banks in the wake of the referendum in its latest assessment of financial risks.

It warned: “Although financial stability has been maintained in the UK through a period of volatility, and a number of economic indicators have picked up from their post-referendum low points, the UK faces a challenging period of uncertainty and adjustment.”

It added that “heightened uncertainty” about the economy and the UK’s future relationship with the EU was “reinforcing” domestic risks. 

The comments of the Bank are a riposte to brighter-than-feared news on the economy’s performance since Brexit.

The Office for National Statistics this week said the economy had not “fallen at the first fence” on the limited data seen so far. The Organisation for Economic Co-operation and Development thinktank meanwhile made a miniscule upgrade to growth forecasts this year, while halving them for 2017.

The FPC, chaired by Mark Carney, sees threats to the commercial property market, “where the risks of a sharp adjustment are crystallising” and the number of transactions had fallen to its lowest level since 2009.

Committee members remain concerned over a fall in overseas investors’ appetite to invest in the UK — leaving the country unable to fund a mammoth current account deficit — as well as the potential impact of a weaker economy on the ability of some households to pay their debts.

The Bank will undertake a regular review of banks’ lending in November “to insure against the risk of a marked loosening in underwriting standards and a significant rise in the number of vulnerable households”.

The comments came as lenders handed out £22.5 billion in mortgage loans in August — the biggest for the month since 2007 when the credit crunch struck, according to the Council of Mortgage Lenders. This was driven by factors including the Bank’s August rate cut to 0.25%, the organisation said.

Overseas, the FPC also sees threats including political uncertainty, worries over the Italian and Portuguese banking systems as well as surging credit markets in China.

The FPC loosened capital requirements for banks in July, potentially giving them an extra £150 billion in lending capacity to support the wider economy. But the committee will stick to “robust prudential standards in the UK financial system” to support London’s position as a financial centre. 

Stronger buffers would “promote a system that dampens, rather than amplifies, the impact of uncertainty and adjustment on the real economy,” it added.

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September 22, 2016 |
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