News | Published July 11 2019

UK banks 'prepared for Brexit and US-China trade-war', says Bank of England

According to the Bank of England, the UK banking system is sufficiently prepared to absorb the financial impact of a no-deal Brexit following the publication of its Financial Stability Report.

The regularly-undertaken check saw the Bank conclude that the perceived likelihood of a no-deal Brexit has "increased" since the start of 2019 but improvements had been made in how prepared the UK economy is for no-deal.

The Bank did concede, however, that are still “material risks” of disruption to the economy in the event of disorderly withdrawal from the EU.

Capital has been held back by UK banks since 2018 to construct a buffer which will let the banking system continue its lending to the economy even if the UK becomes barred from international markets for a period of time after Brexit.

The worst forecast scenario, according to stress tests, would see the economy shrink by 4.7 per cent.

In such a scenario, unemployment is projected to double to 9.5 per cent, accompanied by a 33 per cent fall in property prices.

The Financial Policy Committee of the Bank of England also believes the economy will hold up against the two-pronged threat of a no-deal Brexit and the global trade war between the United States and China and the simultaneous impact this would bring.

The Financial Policy Committee said: “Even if a protectionist-driven global slowdown were to spill over the the UK at the same time as a worst-case disorderly Brexit, the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks”.

“The system will continue to serve UK households and businesses”.

The increased likelihood of a no-deal Brexit has had an impact on foreign investment in markets that are dependant upon it, the Bank has revealed, concluding that levels of such investments are "much weaker".

One such market, the commercial property field, has seen its investment fall to 38 per cent of its average over the last two years. Commercial real estate prices are also continuing to fall.

The aftermath of the locking down of Neil Woodford’s investment fund has also seen the Bank conduct a review into how prone the economy is to impact through investments from so-called “open-ended” funds, which is currently ongoing.

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Authored by

Scott Challinor
Business Editor
July 11 2019

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