The Bank of England (BoE) took measures to guarantee British banks keep lending and insurers do not abandon corporate bonds during a looming difficult post-Brexit period, as the risks the central bank had forecasted are beginning to emerge.
BoE also stated it was closely watching investors’ inclination to fund Britain’s large current account deficit, high levels of household debt and the restrained global economic outlook.
Following two meetings of the Financial Policy Committee (FPC) after the Brexit referendum, the British central bank said that, “There is evidence that some risks have begun to crystalize. The current outlook for UK financial stability is challenging.”
One of the materializing risks policymakers mentioned is in commercial property, where insurer Standard Life had to cease withdrawals from its main British real estate fund on late Monday.
The FPC stated it would overturn a decision in March to raise the amount of capital banks must hold against recurring growths in the credit cycle.
BoE said that holding the counter-cyclical capital buffer (CCB) at zero until at least June 2017 would decrease banks’ capital requirements by 5.7 billion pounds; possibly making available an extra 150 billion pounds for lending.
The bank also assured insurers a longer period to adjust to new European Union capital rules so that they do not feel pressured to discard corporate bonds to evade high capital charges as rates tumble.
Previously on Monday, Chancellor George Osborne told the parliament he planned to meet the chief executives of UK’s largest banks on Tuesday to discuss future steps.
Analysts: BoE to Slash Rates after Hints, Data
Economic analysts predict BoE will cut interest rates within the coming weeks. This is after data revealed the British economy ground to a near stop at the end of the second quarter, even before the Brexit vote.
Monetary policymakers are estimated to slash rates to 0.25 pc by the end of next week specifically, in hopes to help solidify confidence.
Both bank Governor Mark Carney, and Finance Minister George Osborne have insinuated that fresh stimulus could be forthcoming.
“Some monetary policy easing will likely be required over the summer,” Carney stated. He elaborated that the BoE would need to cut rates and possibly provide other stimulus over the summer to dampen the Brexit shock.
However, Carney said the BoE could not entirely counter the shock. Before the referendum, he already cautioned that Britain would fall into recession if the country voted to leave.