London (3)

The UK’s banking system is prepared and ‘still resilient’ to the worst possible scenario of a no-deal Brexit, the Bank of England has said. 

The central bank said there had been “some improvement in the preparedness of the UK economy for no-deal Brexit” across the economy, admitting that “the perceived likelihood of no-deal Brexit has increased since the start of the year”.

Following stricter rules brought in last year, UK banks have to hold back more capital and easy access to £1 trillion worth of funding. And the Bank of England’s stress tests, which assess the health and preparedness for adverse economic conditions of the banks, have including factors such as a 4.7% shrinking in the economy, unemployment more than doubling to 9.5% and house prices dropping by a third.

In its regular Financial Stability Report, the Bank said the greater liquidity held by banks in the UK would allow them to continue lending even if a no-deal Brexit blocked access to international markets for up to three months.

It also said banks would be able to cope if a no-deal Brexit occurred alongside the ongoing trade war between the US and China.

The report read: “Even if a protectionist-drive global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks and continue to serve UK households and businesses.”

Despite reassuring the industry and public that banks would be able to cope, the Bank reiterated its warnings about the negative impact of continued uncertainty around Brexit. The report revealed that markets usually dependant on foreign investors, such as commercial property, had already seen “much weaker” levels in investment. In the first quarter of 2019, commercial property investment was down 38% compared with the same period in the past two years. High-risk corporate lending was less than a fifth of what it was in 2017 and 2018.