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BoE chief Carney in £150bn bid to steady the ship as he warns of challenges

By Holly Williams

Published 06/07/2016

Bank of England governor Mark Carney
Bank of England governor Mark Carney

The Bank of England has announced moves to help boost lending by up to £150bn, as it warned over a "challenging" outlook for financial stability after the Brexit vote.

It has slashed funding rules for banks as part of measures to shore up the economy and financial system in the wake of the referendum and said it "stands ready to take any further actions" if needed.

The Bank unveiled the measure in its twice-yearly Financial Stability Report, which cautioned over the impact of the vote.

It said: "The current outlook for financial stability is challenging.

"There will be a period of uncertainty and adjustment following the result of the referendum. It will take time for the UK to establish new relationships with the EU and the rest of the world." But it said that, despite a severe hit to the pound and falls of up to 20% for bank shares since the referendum, the banking sector has so far proved resilient, with little sign so far of a credit squeeze.

The Bank will reduce the capital required to be held on banks' balance sheets by £5.7bn, which it said would help bolster their ability to lend to households and businesses by up to £150bn.

The so-called countercyclical capital buffer rate has been slashed to zero from 0.5% and will remain at that level for at least a year, it said.

Chancellor George Osborne hailed the Bank's decision to loosen rules for lenders as an "important move".

He added that he was "meeting major banks in Downing Street shortly to discuss a response to the referendum result".

"We need a great national effort to steer the UK through," he said.

It comes after Bank of England governor Mark Carney said last week that policymakers were preparing to slash interest rates over the summer, hinting at a cut later this month or in August.

Rates are now expected to fall to zero by the end of the year from their already historic low of 0.5%.

Mr Carney also signalled the possibility of the Bank reviving its quantitative easing programme, as well as other actions to contain the fallout from the EU referendum. The central bank boss had already stepped in to calm markets in the immediate aftermath of the Brexit decision, pledging to pump in at least £250bn if needed.

And George Osborne said on Monday that the Treasury stood ready to work with the Bank to expand its Funding for Lending scheme (FLS), which offers banks cheap access to finance on the basis that they lend more.

The FLS was launched four years ago and is set to run until at least January 2018, having already been extended.

The Bank's financial stability report reiterated warnings over the risks to the economy following the vote, cautioning over the UK's gaping current account deficit, which stands close to all-time record highs, at 6.9% of gross domestic product.

It also confirmed worries over levels of household debt, the slowdown in the global economy and the risk of overseas investors shunning the UK, which could put further pressure on the pound.

Following Mr Carney's announcement, Barclays reiterated its commitment to lending to SMEs, saying it is aiming to beat last year's record figure of £5.4bn. The bank confirmed that it has "no plans to withdraw or increase the competitive rates it offers due to current economic uncertainty".

Ian Rand, chief executive of Barclays Business Banking, said: "Following the referendum, many businesses will be reassessing their plans for growth and may need to re-plan or increase the resilience of their finances.

"It's in times like these when strong banks should stand tall and help ensure the stability in our economy by continuing our commitment to lend."

Belfast Telegraph

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