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BoE: UK banks strong enough to deal with no-deal Brexit and trade war

11 July 2019 15:13 (UTC +04:00)

The UK financial system is strong enough to cope with a severe global slowdown and a “worst-case” Brexit simultaneously, the Bank of England has said, APA reports.

Yet significant volatility in asset prices would accompany an increasingly likely no-deal Brexit, the Bank said, while disruption to cross-border financial services is possible.

The assessment of the UK’s banking sector came in Threadneedle Street’s final Financial Stability Report before Britain is due to exit the European Union on 31 October.

In recent months the chances of a no-deal Brexit have risen as Boris Johnson edges closer to Downing Street and the clock runs down. Johnson has pledged to leave the EU at the end of October “come what may”.

However, the Bank’s Financial Policy Committee said today: “The UK banking system remains strong enough to continue to lend through the wide range of UK economic and financial shocks that could be associated with Brexit.”

Yet it said: “Financial stability is not the same as market stability. Significant volatility and asset price changes are to be expected in a disorderly Brexit”.

“A range of UK asset prices” such as sterling, shares, and corporate and government debt, “would be expected to adjust sharply, tightening financial conditions for UK households and businesses,” the FPC said.

Another risk to the financial system is the ongoing US-China trade war, the Committee said. “Rising trade tensions have resulted in declining business confidence and pose material downside risks to global output growth,” it said.

It added that a shock to the global system would be amplified by “underlying vulnerabilities” such as high debt levels in both the US and China. A global loss of confidence could damage their ability to pay down their debt piles.

The Bank of England said it was confident that “the core of the UK banking system remains resilient to these global risks”, however.

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