LONDON: The vote for Brexit has created a “challenging period of uncertainty and adjustment” Bank of England policymakers have said.
In a quarterly update on the health of the financial system on Thursday, the Bank’s policy makers also said the UK’s withdrawal from the European Union would not be used as a way to reduce regulation on the banking sector, reports the Guardian.
The Bank also conducted its annual assessment of the help-to-buy scheme, which ends its three-year course at the end of 2016, and said its closure would not lead to mortgage lending drying up or an increase in the size of deposits required to gain a home loan.
The financial policy committee, chaired by the Bank’s governor Mark Carney, focused on the risks posed by Brexit and the “high degree of political and policy uncertainty in many advanced economies”. The record of the FPC meeting on 20 September shows the members regard the outlook for financial stability as challenging.
It said there is a risk that borrowing costs could rise and that households will not be able to make debt repayments. Commercial property prices have fallen and transactions are at their lowest level since 2009, the FPC said, citing the heightened uncertainty about the economic outlook following the Brexit vote. Amid speculation that the withdrawal from the EU will lead to a rewriting of regulations, the policymakers said they were committed “to robust prudential standards in the UK financial system”.
“This will require a level of resilience to be maintained that is at least as great as that currently planned, which itself exceeds that required by intentional baseline standards,” the FPC said. The Bank said that since the vote to leave the EU on 23 June the pound had fallen sharply and that while this would help the country’s current account deficit it could lead to higher borrowing costs.
“The risk remains of a fall in overseas investors’ appetite to invest in the United Kingdom. Any disorderly adjustment in capital flows would be associated with tighter funding conditions for the UK real economy,” the FPC said. Bond yields – in part because of the quantitative easing programme introduced after the Brexit vote – are low, which could make the market vulnerable to sharp adjustments.
The Bank is looking at China - where lending growth is high compared with the size of the economy - and will say more in November when the results of stress tests on banks are published. On Sunday, international banking body the Bank for International Settlements had said that early warning of financial overheating – the gap between credit and GDP – hit 30.1 in China in the first quarter of this year.