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Bank of England sounds alarm over no-deal Brexit chaos in markets

Evening Standard logo Evening Standard 09/10/2019 Simon English
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Markets are heading for ever more choppy waters and the threat to the economy from a no-deal Brexit is high, the Bank of England warned on Wednesday.

The Bank’s financial policy committee said there are “material risks” of economic turmoil, one day after it became clear there is little chance of a deal between Boris Johnson’s government and the European Union.

Stock markets are already volatile. Last week saw several sharp sell-offs. Today the FPC warned: “Significant further asset price volatility is to be expected in a disorderly Brexit.”

Those are the FPC’s last scheduled remarks before the October 31 deadline to negotiate a deal, or leave the EU without one.

Further market insecurity comes from the lack of clarity on the identity of the new governor of the Bank. The process of revealing who will replace Mark Carney is “on track”, the Treasury said yesterday.

Mark Carney, the Governor of the Bank of England © Reuters Mark Carney, the Governor of the Bank of England

The Bank also noted that there are £17 trillion of non-cleared swaps which mature in October. The risks from these could “amplify volatility or spill back to the UK”.

While the Bank has said planning for a no-deal scenario has helped to limit the potential damage to the economy, its worst-case scenario still sees a dramatic 5.5% drop in GDP.

Separately today, the European Banking Authority warned that banks are waiting until the last minute to move staff to their new European Union divisions, risking disarray following a no-deal Brexit.

Jose Manuel Campa, chairman of the EBA, told Bloomberg: “It’s understandable on a human basis, but if you’re concerned about financial instability, it’s not the best thing you want to hear.”

Gallery: 12 reasons why there’ll be another financial crash, 12 reasons why there won't (Love Money)

The FPC also weighed in on Facebook’s digital currency Libra. It backed Libra, saying it could become a systemically important payments system.

But that means it should be regulated as such, it said.

The Treasury has begun a review of Libra and other digital coins to check that UK regulations are suitable for their oversight.

The committee said today: “The resilience of the proposed Libra system would rely on the stability of not just the core elements of the Libra Association and Libra Reserve but also the associated critical activities conducted by other firms in the Libra ecosystem such as validators, exchanges or wallet providers.”

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