- The Bank of England has stated in a new report that the UK economy is preparing itself for a no deal Brexit
- UK banks are reportedly aiming for trillion pounds in liquidity ahead of Brexit
Many times, when the implications of the outcome of Brexit are discussed, it is mostly looked at in terms of things such as citizens rights and the British-Irish border. However, there are many more far-reaching consequences than just these as whatever decision is taken by the incoming Prime Minister regarding Brexit will have an immense effect on the British economy even though billions of pounds have already been spent.
However, according to a July 11 report, the Bank of England has stated that the UK banking system is preparing itself and is resigned to the likelihood of a no-deal Brexit which has been discussed as a growing possibility in the last few months.
Brexit and the British banks
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. According to the report, the likelihood of a No Deal Brexit has increased since the start of the year and that the material risks of the economic disruption that will take place in the case of a no-deal Brexit continue to linger.
However, the report says UK banks and the UK economy, in general, are improving in their preparedness in case this happens. For example, since the last year, banks in the UK have been forced to hold onto more of their capital and demonstrate access to a trillion pounds in liquidity. The reason for this is that having access to a certain amount of money acts as a buffer that will ensure that the banking system can continue lending to the economy and function as a whole if the UK were shut out of international markets for 3 months.
Financially speaking, a no-deal Brexit will lead to a situation in which the British economy would shrink by 4.7 percent, its unemployment rate would rise to 9.5 percent and property prices would fall by an estimated 33 percent.
It was also mentioned by the bank’s key Financial Policy Committee that the banking system would also be prepared for a possible disorderly Brexit as well as a possible trade war involving 25 percent tariffs on US-China trade or global imports and a 30 percent reduction in the US stock market. It stated:
“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.”