Nearly two weeks after Britain’s shock vote to leave the European Union, the Bank of England is warning the economic consequences are already emerging.
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The Chancellor is meeting major banks in Downing Street this afternoon to discuss the response to the Referendum result.
There was speculation over the weekend the Bank of England may also relax capital buffer requirements on banks in the wake of the Brexit vote.
The Bank will reduce the capital required to be held on banks’ balance sheets by £5.7 billion, which it said would help bolster their lending firepower by up to £150 billion.
The purchasing managers’ survey will add to expectations, stoked by Governor Mark Carney last week, that the Bank of England (BoE) will have to cut interest rates in the months ahead to counter the economic fallout of the Brexit vote.
Governor Mark Carney said pre-referendum warnings about what might happen in the event of a Brexit vote had “begun to crystallise” – including a hit to commercial property – and that the United Kingdom “has entered a period of uncertainty and significant market adjustment”.
To ensure there is no lack of supply of credit in the economy that could hamper growth, the Bank of England has made available £150Billion in loans to households and businesses by easing up capital requirements for banks (only for the domestic market).
The yield on 10-year gilts fell as low as 0.731 percent, nearly half its level on June 23, when Britons were voting in the referendum which many investors had expected to keep Britain in the EU.
‘All this uncertainty has contributed to a form of economic post traumatic stress disorder amongst households and businesses and in financial markets.
Prime Minister David Cameron has said he will resign but his successor is not expected to take office until September, deepening the uncertainty.
Cameron’s ruling Conservative Party is now selecting a new leader, who will decide how soon and on what terms Britain will leave the European Union after more than 40 years of membership.
Following the 23 June referendum, the pound has fallen to its lowest level versus the dollar in 31-years and has witnessed extreme volatility in recent weeks.
Sterling was also down a cent against the dollar to $1.32.
And Britain’s first government bond launch since the June 23 European Union referendum returned a record-low yield of 0.382 per cent.
Suspending trading is a measure created to prevent that from happening.
“A number of economic and financial risks are materialising”, the FPC said. Many market watchers expect Carney to outline in his press conference more details as to how he will do this.
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The central bank also said it was closely monitoring investors’ willingness to fund Britain’s large current account deficit after the shock outcome of the vote, as well as high levels of household debt and the subdued global economy.
