The Bank of England will publish its semi-annual Financial Stability Report later in the morning, which analysts said would be an opportunity for the bank to reiterate its ability to manage the financial system in the aftermath of the Brexit vote, but should not affect the pound much.
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He said today’s announcement that the BoE was reversing its previous decision to increase the amount of capital banks must hold against cyclical upturns in the credit cycle represented a “major change”. “It means that three-quarters of UK banks, accounting for 90 per cent of the stock of UK lending, will immediately have greater flexibility to supply credit to UK households and firms”.
In the accompanying financial stability report, the FPC identified several channels, through which the referendum result could increase risks to financial stability.
“To see a policy maker reduce the required capital holdings of bank in a challenging situation is quite an unusual thing to see”.
Rates are now expected to fall to zero by the end of the year from their already historic low of 0.5%.
It has slashed funding rules for banks as part of measures to shore up the economy and financial system in the wake of the referendum and said it “stands ready to take any further actions” if needed.
“One of the most striking things for us is the fact that he (Carney) spoke quite openly about the need for sterling to adjust to act as a stabiliser, and that its weakness was necessary…so that was actually a positive spin”, said ING currency strategist Viraj Patel.
In its six monthly Financial Stability Report, the Bank also said there were risks apparent in the commercial property market, with vital foreign inflows falling by 50% in the first three months of 2016.
“Given that the UK’s current account deficit was running at a clip of nearly 7 percent of GDP over the last few months, anything that slows capital inflows undermines the currency”, said John Hardy, head of currency strategy at Saxo Bank. As Mark Carney remarked last week, people are now wondering if this is a great time to buy a house, businesses are wondering if this is a great time to invest, expand and recruit.
Chancellor George Osborne – who is meeting major banks in Downing Street to discuss the referendum result – said the Bank’s action was an “important move”, adding on Twitter: “We need great national effort to steer United Kingdom through”.
Bank of England governor Mark Carney said plans to contain the fallout from the Brexit vote were working as he announced a move to boost lending to households and businesses by up to £150 billion.
Carney said last week that he believed the BoE would ease monetary policy soon.
LONDON, July 5 The Bank of England took steps on Tuesday to ensure British banks keep lending and insurers do not dump corporate bonds in the “challenging” period that is likely to follow the country’s vote to leave the European Union.
The central bank has intensively monitored markets since June 24, in a way which was more intense even than during the 2008 financial crisis, some industry sources told Reuters.
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When asked if he was anxious about a crash in the buy-to-let market he said the Bank is watching the buy-to-let sector carefully.
