The Bank of England today warned over a “challenging” outlook for financial stability in the UK as the nation faces “uncertainty and adjustment” following the Brexit vote.
Its financial policy committee (FPC) said that while the financial system has been resilient since the decision to quit the EU, there were concerns over the impact on the UK’s public finances, commercial property and over-indebted borrowers.
But it said bank capital standards will not be relaxed following Brexit, telling lenders they could expect rules “at least as great as that currently planned”.
The FPC also dashed the prospect of the Help to Buy mortgage scheme being extended, saying its closure as planned at the end of the year would not cause lending to dry up.
In minutes of the FPC’s meeting earlier this week, it cautioned: “Although financial stability has been maintained in the UK through a period of volatility, and a number of economic indicators have picked up from their post-referendum low points, the UK faces a challenging period of uncertainty and adjustment.”
It said recent actions taken by the Bank – including slashing interest rates to 0.25 per cent last month – had helped support the financial system and keep bank funding conditions broadly stable.
In an update on bank rules and regulation following the Brexit vote, the FPC said it will “remain committed to the implementation of robust prudential standards in the UK financial system”.
“This will require a level of resilience to be maintained that is at least as great as that currently planned, which itself exceeds that required by international baseline standards.”
It added: “The FPC will need to ensure that the regulatory framework continues to evolve alongside international standards and the risk environment.”
This will be seen as key by banks, which fear that if Britain strays from EU rules, it will impact their ability to “passport” services across Europe.
The FPC monitors and tries to mitigate risks to the UK’s financial stability – a role it said is important not just for the UK but for economies worldwide, given Britain’s position as a leading financial centre, worth around ten times gross domestic product.
It cautioned that Brexit had heightened domestic risks, with risks of a “sharp adjustment” in commercial property, where prices have fallen and sales are at their lowest level since 2009.
On the UK’s hard-hit current account, it said there remains the risk of a fall in overseas investment in Britain following Brexit.
It also said there were still worries that if employment and wages weaken, borrowers will struggle with debts and rein in spending.
The FPC updated on the Government’s Help to Buy initiative after an annual review of the scheme and confirmed its closure due on 31 December would not impact the availability of mortgage finance.
It said use of the scheme has fallen significantly over the past year, helped by the recent pick-up in mortgages aimed at borrowers with low deposits.