UK banks can cope with no-deal Brexit and trade war: BOE

Governor of the Bank of England Mark Carney.
Matt Dunham  AFP  Getty Images

"No-deal Brexit would be a major economic adjustment, virtually instantaneously".

Britain should do what it can to remain attractive to the worldwide investors who fund its large current account deficit, potentially one of the economy's major vulnerabilities, Bank of England Governor Mark Carney said on Thursday. Carney said while banks were well prepared for Brexit, this did not mean the economy would be unscathed if Britain left the European Union on October 31 without a transition deal, something both contenders to be the next prime minister say is possible.

He said while the Government had made progress in preparing for a no-deal, it still had work to do, while there was also significant action needed on the part of European Union authorities.

"The single most important determinant of the UK's economic outlook remains the nature and timing of Brexit".

Patel said: "It is also notable that where the November stability report points to broad resilience across the banking sector, it is now speaking only about major banking institutions".

The Bank's key Financial Policy Committee went further than it has before by saying that the banking system would also be resilient to a disorderly Brexit occurring at the same time as a global trade war involving 25% tariffs on US-China trade, all global inputs and a 30% drop in the US stock market.

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"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 core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks and continue to serve UK households and businesses."

In its assessment of United Kingdom bank strength, the Bank said it assumed the worst case no-deal Brexit outcome, as well as a trade war outcome that saw the U.S. and China ramp up their tariffs by 25%, as well as a sharp contraction in global growth.

The worst forecast scenario, according to stress tests, would see the economy shrink by 4.7 per cent.

These comments came via the bank's periodic financial stability report which details the current status of the British financial system as well as its possible future status.

The Bank will look at potentially imposing restrictions that could ban funds invested in illiquid assets from offering short-term notice periods.

Mark Carney, the governor of the Bank of England, warned on Thursday that Facebook and its partners in the Libra Association must be meticulous from the very start of their cryptoasset project.

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