Mark Carney, Governor and author of the Bank of England Brexit plan. As it turns out, he seems to be the only person in the World that had a plan in place for an EU Referendum Leave vote.
In fact, unlike some of the Chancellor’s predictions, the Bank of England’s are beginning to crystallise.
In the Bank’s May inflation report, he warned that a Leave outcome would lead to a “technical recession” – that is six months of economic contraction with all that could mean for job losses and real incomes. Sterling could fall sharply, investment dry up and confidence slump.
Both the Governor and Chancellor have made announcements this week to let the world know that although economic growth might slow down, this will not be a repeat of the credit crunch.
The Governor put his plans into full swing. He delivered reassuring words to investors, borrowers and lenders to calm markets and reinforce stability, based on the strength of the banking system.
The Bank of England Brexit plan
Six months ago, banks were told to create buffers to cope with the economic cycle by putting more money aside against each loan. Mr. Carney has reversed building up the buffers this week, to allow banks to lend more.
The £5.7bn of capital freed up by the move can be expanded with bank’s borrowing more from the bAnk of England, raising total lending capacity by £150bn.
Mark Carney said “This is a major change. It means that three-quarters of UK banks, accounting for 90% of the stock of UK lending, will immediately – immediately – have greater flexibility to supply credit to UK households and firms.”
The Governor met lenders from the big banks such as Royal Bank of Scotland and Barclays, to the challengers such as Virgin Money. They agreed to lend more for mortgages and small businesses.
The change to the capital buffer follows a move to make sure banks have access to the funds they need in several currencies, to ensure there is no liquidity crisis which could squeeze lending and threaten the system as a whole.
Will that work
Just because the money is on offer, does not mean customers will use it.
Experience of the slow economic recovery following the credit crunch when lending was low, was down to two reasons. Firstly, banks claimed there was little demand from customers and secondly, banks were reticent to lend.
This time, regulators are confident the supply from banks will remain open. They can’t control demand from consumers and businesses to borrow.
What does that mean for me?
One of the Bank’s consistent concerns is debt levels carried by “vulnerable” consumers who might be affected by job losses or a fall in incomes.
The Governor has repeated his advice for us all to be “prudent” and think carefully about where interest rates and income could go in the coming years when taking out a mortgage or other loan products.
But he says that regardless of whether the economy is booming or struggling.
As consensus is building around an interest rate cut over the summer, now may be the time to think about refinancing long term debts.
A low cost of borrowing from low fixed interest rates provides the opportunity of lower payments, to either repay debt off sooner or put some of the money saved each month into a savings scheme like an ISA.
Before doing this, you need to check that it makes sense. You should make sure saving on repayments aren’t negated by a high redemption figure or fees.
If you’re concerned about job loss, then now could be the time to think about an income protection policy. Income Protection is a long-term insurance policy, designed to support you if you can’t work because you’re sick or injured.
To find out about protecting your finances from Brexit, or answers to any related question, simply contact us today.
Remember your home may be at risk if you do not keep up with the repayments for a loan or mortgage secured on your property.