LONDON: The Bank of England’s Financial Policy Committee (FPC) said Tuesday the most significant domestic risks to financial stability were linked to the referendum on Britain’s membership of the European Union (EU).
The effect of uncertainty has been most marked in sterling spot and options markets, the FPC noted.
The committee said heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of British assets.
The result of the uncertainty could lead to a further depreciation of sterling and affect the cost and availability of financing for a broad range of British borrowers, the FPC judged.
The committee also alerted the global risks including Fed monetary policy, capital outflows from emerging markets and risky asset price falling.
The FPC said the outlook for financial stability in Britain has deteriorated since November 2015 and some pre-existing risks have crystallized, drawing on the resilience of the system. In some financial markets, underlying liquidity conditions have continued to deteriorate.
Nevertheless, the committee said the resilience of the core banking system has improved further since November last year.
