- Title: Bank of England sees "challenging" outlook for UK financial stability
- Date: 30th November 2016
- Summary: LONDON, ENGLAND, UK (FILE) (REUTERS) VARIOUS EXTERIORS OF RBS BANK
- Embargoed: 15th December 2016 12:45
- Keywords: UK United Kingdom Britain Bank of England Mark Carney rates euro zone US MPC monetary policy Trump election global economy growth
- Location: LONDON, ENGLAND, UK
- City: LONDON, ENGLAND, UK
- Country: United Kingdom
- Reuters ID: LVA0065AMYNBH
- Aspect Ratio: 16:9
- Story Text: Britain's financial system faces a "challenging" outlook due to risks posed by leaving the European Union and other factors including the recent U.S. election, the Bank of England said on Wednesday (November 30).
The danger posed by leaving the EU depended on how smoothly the process went, and whether businesses in the EU lost access to British financial services, which would hurt both Britain and the EU's economy, the BoE said.
The central bank's Financial Policy Committee also flagged a wide range of other risks.
"There is this possibility that the slowdown in the growth of world trade which we have seen in the past few years accelerates and it accelerates because of discreet policy initiatives potentially from the world's largest economy and well that might not directly affect the United Kingdom, if it slows to the pace of global growth, we're an open trading nation, one of the most open nations in the world, it's going to have a knock on affect through this economy," said Mark Carney, the governor of the Bank of England.
He also said there could be further risks to financial stability from Britain's vote to leave the EU.
"Additional risk to the euro area could emerge as a consequence of the UK withdrawal from the European Union. Banks located in the UK supply over half the debt and equity issuance by continental firms and account for over three quarters of foreign exchange and derivatives in the EU. There could be a greater risk of disruption to services provided through the European real economy, some of which could spill back to the UK through trade and financial linkages," said Carney.
The BoE also saw other potential threats, including rapid credit growth in China and the health of the euro zone banking system and bond markets, as well as concern about British commercial real estate, parts of which remained overvalued.
Separately, the BoE also released its annual bank stress tests, which Royal Bank of Scotland failed, requiring it to raise extra capital.
"It lost its way over a number of years and became focussed on other things that it didn't do particularly well. Now its challenge is that it still has legacy issues associated with that, there's misconduct costs, there's impaired assets, they're still working through the so called non-core assets on which they have made progress and they have made progress over the course of the year. They have identified and made an announcement today about addition actions that they will be taking," added Carney.
The BoE also made no change to its recommendation in June 2014 that lenders should restrict high loan-to-income mortgages. No more than 15 percent of mortgages should be for amounts greater than 4.5 times a borrower's income, it said, leading to a slowdown in mortgage approvals for around a year.
Figures on Tuesday showed the number of mortgages approved in October was the highest since March, and earlier this month the BoE revised up its forecast for mortgage approvals.
Policymakers also predicted house prices would rise by around 0.5 percent each quarter over the next six months, up from earlier predictions of a modest fall in the wake of Britain's vote to leave the EU.
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