Olivier and Mann – The Financial Policy Committee (FPC) of the Bank of England (BOE) in its November meeting said that while the U.K. has weathered Brexit generated headwinds, new political risks had generated economic worries around the globe.
The FPC also mentioned that the possible increase of the already overstretched current account coupled with the extended levels of U.K. household borrowing was included in the risks to the U.K.
While UK’s economic performance had been more stable than had been anticipated in July following Brexit, the economic outlook remained lower during the second half of 2016. UK’s post-Brexit relationship with the Eurozone is still undecided and worldwide political risks remain.
The minutes of the FPC meeting mentioned that there was heightened unpredictability on a global scale after the U.S. presidential election, the Italian referendum and other upcoming elections within the Eurozone.
The FPC meeting was made before the Italian referendum which has resulted in further unpredictability.
The FPC is focusing on UK’s local risks with officials noting the sudden drop in commercial property purchases since the EU referendum with transactions down by a quarter from 2015.
The FPC mentioned that there have been signs of pressures in the CRE market steadying in September and October, although the FPC members agreed that the sector may experience corrections.
UK’s updated data showed current account at 5.9 percent of the GDP which is big based on historical records and noticeable changes could test UK’s financial stability, as it would incur higher costs and a further devaluation of the Pound.
The FPC evaluated the effect of reducing the amount of new mortgages which may in time have proved unaffordable. The measures resulted in 9.7 percent of new mortgages at loan to income ratios of 4.5 or higher in the third quarter, marginally under against the 10.1 percent level seen two years ago.
The FPC admitted that the effects of the new policies were minimal as lenders had processed many mortgages at just under the 4.5 loan to income ratio.