Bank of England warns of disruption due to Brexit but are well prepared for economic shocks

THE Bank of England is warning of possible disruption to financial services due to the Brexit transition – but banks are prepared for economic shocks.

In an update today, the BoE said most risks from a no-deal Brexit have already been reduced, although some problems could still happen.

The central bank said any issues are likely to affect EU-based clients and customers, as opposed to UK customers.

Some customers of EU banks may experience issues with processing payments.

They may also be subject to additional checks before transfers can be made.

It added that lenders should continue taking measures to minimise disruption.

Some UK banks have already started notifying EU-based customers that they will not continue to provide certain banking services.

Summing up how banks are prepared to protect customers, the BoE said lenders can afford to take a £200billion hit in credit losses – although it said this is unlikely to happen.

A loss of this size would involve "incredibly severe" shocks, such as unemployment rising to 15% and house prices falling by 30%.

The BoE report would normally include an annual stress test to show how banks could cope with an economic shock.

However, the test was cancelled for the first time since it was launched in 2014 due to coronavirus.

The warning comes as Prime Minister Boris Johnson told the nation to prepare for a no deal Brexit.

The PM last night summoned his Cabinet to a bleak conference call, telling them outrageous EU demands were pushing negotiations to the brink.

The report said: "Financial sector preparations for the end of the transition period with the EU are now in their final stages.

"Most risks to UK financial stability that could arise from disruption to the provision of cross-border financial services at the end of the transition period have been mitigated."

However, it added: "Financial stability is not the same as market stability or the avoidance of any disruption to users of financial services. Some market volatility and disruption to financial services, particularly to EU-based clients, could arise."

More to follow…

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