BoE's Cunliffe says Brexit poses huge uncertainty
The deputy governor of the Bank of England said there was huge uncertainty over the economic effects of Brexit as he underlined the BoE's view that Britain’s banks would be able to withstand a disorderly departure from the EU.
However, Jon Cunliffe, deputy governor for financial stability, suggested a global economic crisis combined with Britain crashing out of the EU might be a different matter.
The BoE’s tests of banks’ financial strength have concluded that Britain leaving the EU with no deal would be no worse than conditions in the event of a global economic meltdown.
Cunliffe said the BoE did not see any economic impacts under a disorderly Brexit that went beyond the scenarios in the stress tests. The potential impact of Brexit included new tariffs, queues at the border, disruption of goods and services and companies not being prepared, he said.
Cunliffe told the BBC: “These things are very difficult to assess in economic terms […] There is a huge amount of uncertainty about how Brexit would affect different parts of the economy.”
The stress tests, published on 28 November, included house prices falling by a third, interest rates rising to 4% within two years and unemployment more than doubling to 9.5%. Banks could write off £50bn of loans in two years without running short of capital, Cunliffe said.
But he raised the prospect of a global economic crisis combined with disorderly Brexit. “If we had a global crisis and a disorderly Brexit at the same time that is a different [matter].”
Cunliffe said the BoE was watching consumer borrowing but that, after growing at 10% a year, the market was cooling and consumers were not on a debt splurge. Unsecured borrowing is about 11% of total household debt of £1.6tn with the vast majority comprising safer mortgages, he said.
“I don’t get the sense British households as a whole are going on some debt-fuelled binge but there is a pocket of risk in consumer lending and that is something that needs to be watched.”
He said he voted against the BoE’s recent decision to increase interest rates because he was not convinced wage inflation would add to inflation.
“I was concerned that we should just see a bit more evidence of that domestic cost pressure before raising rates,” Cunliffe said.
He said cryptocurrencies were not a threat to financial stability but that individual investors should “do their homework” when values are rising rapidly. He said Bitcoin and other digital currencies are not backed by a central bank and are more akin to a commodity than a currency.