In Mark Carney’s third statement since the referendum, he relaxes banking sector rules to free up lending to households and businesses

The Bank of England has warned of “challenging” risks to financial stability following the vote for Brexit as it took steps to release up to £150bn worth of lending to households and businesses by relaxing regulatory requirements on the banking sector.

Mark Carney eases bank lending rules to fight Brexit crisis as pound hits 31-year low - live updates Read more

As it published its twice-yearly assessment of financial stability on Tuesday, the Bank said the risks it had feared ahead of the EU referendum had started to crystallise.

The shares of banks have fallen by 20% since the poll while sterling was plunging to fresh 31-year lows and on the brink of falling though $1.30 as London markets were closing on Tuesday. The pound had spiked to $1.50 as voting closed on 23 June in expectation of a remain victory.

In its financial stability report, the Bank said: “The current outlook for UK financial stability is challenging.”

As a result, the Bank is monitoring a number of sectors closely, including growth in buy-to-let mortgage lending and a potential downturn in the commercial property sector, where a number of major funds have barred investors from withdrawing their investments. The current account deficit – which measures the shortfall between money paid out by the UK and money coming in – and household debt burdens are also on its watchlist.



“The number of vulnerable households could increase due to a tougher economic outlook and a potential tightening of credit conditions. In particular there is growing evidence that uncertainty about the referendum has delayed major economic decisions, such as business investment, construction and housing market activity,” said Mark Carney, governor of the Bank of England, in his third public intervention since the referendum result.

He first spoke on the morning the referendum result was announced, reassuring investors that the Bank would do what was necessary to keep markets stable. Last week he signalled that a cut to interest rates, already at a historic 0.5% low, might be imminent. The latest decision on interest rates will be taken by the Bank next week.

“The UK has entered a period of uncertainty and significant economic adjustment,” Carney said, as he stated it was the Bank’s role “to be straight with the British people” about risks to financial stability.

As the Bank issued its assessment of risks to the financial system, Carney said households should act prudently in the wake of the referendum.

“We’re advising people to be prudent. We always advise people to be prudent, whether times are good or times are difficult,” said Carney.



“Certainly if you’re taking out a mortgage, at some point over the life of that mortgage times will be difficult, it might be at the start, it might be five years in, it might be 10, 15, whatever. So you want to make sure as a family, as an individual, that you’ll be able to service that mortgage if times are tough; you don’t want to lose your flat, your home,” he said.

Making attempts to ensure that there was a not a rerun of conditions after the 2008 banking crisis when banks were reluctant to issue loans, Carney said: “That’s the one thing we want to take off the table.”

“Given the core resilience of the banks, it’s important to ensure that there is no question about the availability of credit,” he added, saying banks had £130bn more capital since the crisis and could now be part of the solution, not the problem. “If we do see a slowing in credit growth, it will be demand driven not supply driven.”

Threadneedle Street released banks from a requirement to hold £5.7bn of capital as a protection against downturns. It is the first time the Bank has enacted this policy, which will increase banks’ capacity for lending to households and businesses by up to £150bn.

The governor was speaking as George Osborne met with the heads of major banks; in a joint statement with the chancellor the banks agreed to keep lending. “While we are realistic about the economic challenge facing the country after the referendum result; we are reassured that collectively we can rise to it. The last time Britain faced an economic shock the banks were at the heart of the problem. Thanks to the hard work of rebuilding the banks, making them stronger and safer, and the arrival of new challenger banks – banks and building societies are now part of the solution,” the banks and the chancellor said.

As well as relaxing the amount of capital that banks must hold, Threadneedle Street is also making life easier for insurance companies to cope with market turmoil and is committed to offering cheap loans to the banking sector to head off the threat of a credit crisis.

But, Carney said, the Bank could not act alone in shoring up markets and the economy. “The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of the Bank of England but will be driven by major decisions made by others in the public and private sectors.”

Frances O’ Grady, general secretary of the TUC, the trade union umbrella body, called on the government to speed up infrastructure projects and kickstart the third runway at Heathrow. “Protecting the economy from Brexit risks can’t be left to the Bank of England alone. The government must now act quickly so that working people do not pay the price of leaving the EU,” O’Grady said.

The Money Advice Trust, a debt charity, said it was expecting an increase in demand for the services of its National Debtline service. “It is now more important than ever that we are prepared for what could be a significant increase in the number of people falling into problem debt in the UK,” said Joanna Elson, chief executive of the Money Advice Trust.

The Bank is also concerned about the ability to keep financing the UK’s current account deficit – “high by historical and international standards” – at a time when investment inflows into the UK are slowing.

It said that “during a prolonged period of heightened uncertainty there is a risk that overseas investors could continue to be deterred from investing in the United Kingdom”.