Publication - Financial Policy Committee statement from its meeting, 20 September 2016 - 22 September 2016
1. At its meeting on 20 September, the Financial Policy Committee (FPC) reviewed developments since its meeting on 1 July and since the 23 June referendum on the United Kingdom’s membership of the European Union.
2. The financial system has demonstrated resilience to spikes in uncertainty and risk aversion. Core financial markets functioned effectively despite initial sharp price moves and particularly high volumes of transactions relative to normal levels in some markets. Bank funding conditions remained broadly stable.
3. That reflected the consistent building of resilience in the financial system over recent years, extensive contingency planning undertaken by the Bank of England and financial institutions in the run up to the referendum, and the co-ordinated actions taken by the Bank after the referendum.
4. Although financial stability has been maintained in the United Kingdom through a period of volatility, and a number of economic indicators have picked up from their post-referendum low points, the United Kingdom faces a challenging period of uncertainty and adjustment.
5. The FPC continues to assess the financial stability implications of the United Kingdom’s withdrawal from the EU. These will be driven in part by the nature of, and the transition to, the United Kingdom’s new relationship with the EU. The Committee will develop its assessment over the coming months.
The FPC’s approach following the referendum
6. The United Kingdom’s position as the leading internationally active financial centre, with a financial system that is, by asset size, around ten times GDP, means that the FPC’s statutory responsibility of protecting and enhancing the resilience of the UK financial system is particularly important for both the domestic and global economies.
7. Irrespective of the particular form of the United Kingdom’s future relationship with the EU, and consistent with its statutory responsibility, the FPC 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.
8. The FPC will need to ensure that the regulatory framework continues to evolve alongside international standards and the risk environment. It notes the importance to achieving its statutory objectives of having the macroprudential flexibility to align the resilience of the financial system to the risks that the system faces.
Current outlook for financial stability: risks
9. The FPC assesses the outlook for financial stability by identifying the risks faced by the financial system and weighing them against the resilience of the system. In doing so, its aim is to ensure the financial system can continue to provide essential services to the real economy, even in adverse circumstances.
10. The FPC judges that the current outlook for financial stability in the United Kingdom remains challenging.
11. Heightened uncertainty about the near-term macroeconomic outlook and the United Kingdom’s future relationship with the EU is reinforcing domestic risks. In the UK commercial real estate market, the risks of a sharp adjustment are crystallising. Prices have fallen and transactions are at their lowest level since 2009.
12. Although the sharp fall in the sterling exchange rate will help to smooth the adjustment of the current account over time, the risk remains of a fall in overseas investors’ appetite to invest in the United Kingdom. Any disorderly adjustment in capital flows would be associated with tighter funding conditions for the UK real economy.
page source http://www.bankofengland.co.uk/
