According to the latest financial stability report of the Bank of England on Thursday, the British banking system would tolerate Britain leaving the European Union in unresolved circumstances without agreement.
The British central bank recalls the simulation scenario used in its recent stress test, stating that the UK’s gross domestic product (GDP) is falling by 4.7 percent, the unemployment rate rising to 9.5 percent, residential property prices by 33 percent, and business property by 40 percent and the demand for British investment vehicles is suddenly falling.
The simulation model also shows that the world economy GDP value drops by 2.4 per cent at purchasing power parity, while China’s total domestic product falls by 1.2 per cent in the first year of the stress scenario.
In this environment, the pound exchange rate index drops by 27 percent, while the central bank base rate rises to 4 percent from the current 0.75 percent.
According to the Bank of England’s new financial stability report, the UK banking system could endure such a severe market upheaval.
According to the report, banks have at their disposal more than a billion billion (HUF 362 billion) high-quality liquid assets, which could cover their long-term liabilities without having to access major interbank financing or foreign exchange market funds.
According to the central bank report, the British banking system would be able to withstand even the economic shock if, at the same time as the worst-case scenario of disorderly Brexit, the threat of protectionist globalization suddenly slows down due to threatening protectionist measures.
However, the Bank of England also notes that the noticeable probability of non-agreement withdrawal has increased since the beginning of the year and there is a material risk that such a Brexit scenario in the UK economy will cause a disruption.
According to the study, in markets that are heavily dependent on foreign investment, such as the commercial real estate market, the value of investment capital flowing into Britain in the first quarter of this year was far behind the level of previous years.
In the first three months of 2019, the British business real estate market received 38 percent less gross foreign capital investment than the average quarterly capital inflow measured in 2018, and the decline in investment value was accompanied by an average 0.7 percent price drop for commercial real estate in the Bank of England’s Thursday report.
The uncertainties surrounding Brexit are already heavily burdening investment activity across the British real economy.
Mark Carney, Governor of the Bank of England at a London business event recently said he hadn’t grown since the referendum in Brexit in 2016, and that the value of business investment in the British economy fell by 3.7 percent over the past year.
According to Carney, the British economy is dramatically underperforming in terms of investment in historical and regional comparisons.
According to forecasts from UK business organizations, this will not be the case this year.
According to the latest forecast from the British Chambers of Commerce, the value of investments in the UK business sector will drop by 1.3 percent this year.
This is a significantly worse estimate, as the previous forecast of the Chamber organization has predicted a 1 percent drop in business value this year.