Bank of England warns on UK financial stability outlook and Brexit vote
Newsflash: The Bank of England is warning that the outlook for financial stability in the United Kingdom has deteriorated over the last four months.
In a new report, the Bank’s Financial Policy Committee cites the slowdown in the Chinese economy, weaker growth across the globe, and recent market turbulence.
It also singles out the upcoming EU referendum as the “most significant near-term domestic risk” to the UK.
The FPC says:
Some pre-existing risks have crystallised, drawing on the resilience of the system. Other risks stemming from the global environment have increased. Domestic risks have been supplemented by risks around the EU referendum.
In a subdued report, the FPC flags up that emerging market economies have suffered capital outflows, following last December’s hike in US interest rates. There have also been “widespread falls in the prices of risky assets.”
And it also cites concerns over China’s economy, and the recent heavy falls in bank share prices.
Here’s the key section:
In an environment of low inflation and continued weakness in investment and productivity growth, prospects for global nominal growth are subdued.
This raises questions about resilience to future adverse shocks, particularly for emerging market economies where debt levels continue to rise and terms of trade have deteriorated. In this environment, the re-acceleration of credit growth in China is concerning.
In some advanced economies, lower nominal interest rates associated with weak growth prospects are restraining profitability in banking systems that are still in post-crisis repair and pose challenges for some banking business models. Globally, bank equity prices have fallen significantly and a material proportion of banks are now trading below book value.