BOE FPC statement from 20 Sept meeting

  • Latest stress test results to be published in November
  • The financial system has demonstrated resilience to spikes in uncertainty and risk aversion. Core financial markets functioned effectively despite initial sharp price moves and particularly high volumes of transactions relative to normal levels in some markets. Bank funding conditions remained broadly stable.
  • That reflected the consistent building of resilience in the financial system over recent years, extensive contingency planning undertaken by the Bank of England and financial institutions in the run up to the referendum, and the co-ordinated actions taken by the Bank after the referendum
  • Although financial stability has been maintained in the United Kingdom through a period of volatility, and a number of economic indicators have picked up from their post-referendum low points, the United Kingdom faces a challenging period of uncertainty and adjustment
  • The FPC continues to assess the financial stability implications of the United Kingdom's withdrawal from the EU. These will be driven in part by the nature of, and the transition to, the United Kingdom's new relationship with the EU. The Committee will develop its assessment over the coming months
  • Heightened uncertainty about the near-term macroeconomic outlook and the United Kingdom's future relationship with the EU is reinforcing domestic risks. In the UK commercial real estate market, the risks of a sharp adjustment are crystallising. Prices have fallen and transactions are at their lowest level since 2009.
  • Although the sharp fall in the sterling exchange rate will help to smooth the adjustment of the current account over time, 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 remains concerned that the ability of some households to service their debts would be challenged by a period of weaker employment and income growth. These vulnerable households could affect broader economic activity by cutting back sharply on expenditure in order to service debts.

The concerns over the level of household debt is a timely reminder of the tough road ahead.

GBPUSD unfazed at 1.3080 with EURGBP still 0.8596. 1.3050-1.3100 should present the near term tests now.

General yen supply adding to GBPJPY demand.

Full BOE FPC report here