The Bank has also moved to relax the requirements around the amount of capital banks have to hold.
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“The decision to lower counter cyclical capital requirements was chose to free capital, about 150 billion sterling [nearly $200 billion USD] for lending to the real economy, by which I mean credit supply to household and business”, said Lucia Quaglia, professor at the University of York in the United Kingdom.
Governor Mark Carney told reporters Tuesday that some of the risks predicted to the economy before the referendum on leaving the European Union have begun to crystalize but that the central bank will act to support jobs and growth. It added: “There is evidence that some risks have begun to crystallise”.
In cutting the requirement, the Bank made it absolutely clear where it wants the £150bn to go, stating: “The FPC strongly expects that banks will continue to support the real economy, by drawing on buffers as necessary”.
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. The bank confirmed that it has “no plans to withdraw or increase the competitive rates it offers due to current economic uncertainty”.
“We are seeing signs that the environment is becoming more “risk averse”, he says”. Cameron has left it up to the next government to decide how Britain might rework its ties with the European Union, something which could take years to negotiate.
At the auction of funds in exchange for collateral, 12 days after Britain voted for a so-called Brexit, banks were allotted 1.35 billion pounds ($1.8 billion).
The pound was down more than 1 per cent against the dollar today, trading at 1.31.
Suspending trading is a measure created to prevent that from happening. Later M&G, the fund management arm of insurer Prudential also temporarily closed its fund.
At the press conference Carney said that the credit market will be driven by demand, not supply.
Major risks outlined Tuesday by the BoE’s Financial Policy Committee (FPC) included fragile financial markets, subdued global economic growth, high household debt, and the “stretched” commercial real estate market, and Britain’s “large” current account deficit. The bank publishes its regular financial stability report on Tuesday. A BoE auction to provide banks with liquidity and a sale of British government bonds went smoothly.
Against the Bank of England’s trade-weighted basket of currencies, sterling traded at 79.7, equalling a three-year trough hit on Friday.
“While sterling’s fall is clearly a symptom of other problems, it may also be part of the cure”.
The outcome of the referendum has thrown Britain into political crisis, but this is not yet an economic crisis.
Carney said last week that he believed the BoE would ease monetary policy soon.
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Mr Carney also signalled the possibility of the Bank reviving its quantitative easing (QE) programme, having already pledged to pump in at least £250bn if needed to calm markets in the immediate aftermath of the Brexit decision.
