Britain's central bank has announced further measures to protect from the effects of Brexit including lowering the amount of money that banks have to keep in reserve so more cash will be loaned out.
ADVERTISEMENTBritain’s central bank has announced further measures to make sure the UK economy is protected from the effects of Brexit.
That comes after the release of the bank’s twice-yearly Financial Stability Report, which warned: “The current outlook for UK financial stability is challenging.”
Bank of England (BoE) governor Mark Carney said the risks from Brexit have started to crystallise.
Consequently bank officials are lowering the amount of money that commercial banks have to keep in reserve in the hope that some of that cash will be loaned out to companies and individuals
Carney told reporters: “When combined with the already strong balance sheets of UK banks, today’s action means that those UK businesses and households who want to seize viable opportunities in the post-referendum world can be confident that they will be supported by the financial system.”
The central bank said the move would free up an extra 150 billion pounds (176 billion euros) for lending.
#FinancialStabilityReport – July 2016 https://t.co/jglb1FonL1
— Bank of England (@bankofengland) July 5, 2016
Pound slumps
Amid the political uncertainty in Britain, financial markets remain jittery and the pound dipped in value again on Tuesday, falling even lower against the US dollar than it did immediately after the Brexit vote. The last time it was worth this little compared to the dollar was 1985. Sterling also sank to a more than two-and-a-half-year low against the euro.
“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.
Carney is trying to project an aura of stability, but he also again pushed for politicians to do more, warning: “The efforts of the Bank of England will not be able to fully and immediately offset the market and economic volatility that can be expected while this adjustment proceeds.”
Illustrating the nervousness, surveys of businesses, carried out mostly before the referendum vote, show growth in Britain’s dominant services sector fell to its lowest in more than three years.
Pessimism about the UK’s economic outlook almost doubled following the Brexit vote and a majority economists expect it to slide into recession.
Investor worries
The BoE also expressed concern about a fall in investor demand for British assets which could make it harder for the government to finance its large current account deficit.
Brexit worries over commercial real estate will also make it harder for businesses to use their property as collateral to obtain loans.
Standard Life Investment’s suspended its UK commercial property fund on Monday after investors pulled out in large numbers and Aviva and M&G, the fund management arm of insurer Prudential, did the same on Tuesday. The three funds together are worth about 10 billion pounds.
Worrying: Aviva follows Standard Life in suspending dealing in its property fund https://t.co/4tYeUp65iS
— Alasdair Pal (@AlasdairPal) July 5, 2016
That comes amid other signs of stress from one of the world’s biggest property markets. It has been pumped up in recent years by inflows of foreign capital that analysts worry may now fade.
