UK faces 'challenging period of uncertainty and adjustment' due to Brexit, says BoE

The Bank of England (BoE) cautioned that the British economy faces “a challenging period of uncertainty and adjustment” in the wake of the Brexit result, which also does not mean there would be looser regulation of the banking sector.

The central bank said Brexit posed a “high degree of political and policy uncertainty in many advanced economies”.

The BoE's Financial Policy Committee (FPC), chaired by governor Mark Carney, said in a quarterly update that lenders should not expect bank capital rules to be relaxed and they would be as tough as those currently in place.

The Committee said: “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.

“The FPC will need to ensure that the regulatory framework continues to evolve alongside international standards and the risk environment.”

Banks are eager for the UK to maintain passporting rights to the single market as it makes conducting business across Europe easier, and the statement from the BoE is the first since the referendum over what the regulatory landscape could look like in a post-Brexit Britain.

The FPC said the risks of a sharp adjustment were crystalising for commercial property in the UK, as prices have fallen and transactions are at their lowest level since 2009 due to the economic uncertainty arisen from the referendum result.

Several property funds temporarily stopped investors from accessing their cash in the days following the Brexit vote.

However it said the closure of the help-to-buy scheme at the end of 2016 after three years would not lead to winding down of mortgage lending.

The BoE said the pound has plummeted since the June referendum which would help the UK’s current account deficit, but could lead to high borrowing costs.

“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.”

The FPC said it is also monitoring the global economy, the profitability of European banks and credit growth in China, but will say more in November when it releases results of stress tests on banks.