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    The Bank of England is seen through the columns on the Royal Exchange building in London, Britain August 4, 2016

    Bank Of England: Financial Sector Ready For No Deal Brexit But Wider Economy Will Be Harmed

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    The UK is set to leave the European Union on 31 October. With the prospects of a withdrawal agreement looking less likely, the UK's business community is preparing for the likelihood that the country could withdraw without a trade agreement in place.

    The Bank of England (BOE) warned in a report on Wednesday that UK markets may face serious volatility in the event of a no-deal Brexit accompanied by nationwide economic disruption.

    The central bank claims that the economy outside of the financial sector will see, in a worst-case scenario, a significant 5.5% drop in gross domestic product (GDP) following a withdrawal form the EU without a trade agreement on top of slowing growth globally

    "The committee concluded that entrenched Brexit uncertainties, particularly in an environment of weaker global growth, had continued to weigh on the UK economy, including on business investment, the prices of UK assets and flows of foreign capital into the UK, most notably in commercial property and leveraged lending markets," the BOE said in a report published on Wednesday.

    Despite the bleak prospects for the national economy, the banks Financial Policy Committee did make assurances that the financial sector was prepared for the outcome of a no-deal Brexit and that authorities were able to “ensure that households and businesses will be able to use existing and new services from EU financial institutions."

    The UK's major banks have maintained "tier 1 capital levels of around 17 percent of risk-weighted assets" meaning they have extensive cash reserves and and other highly liquid assets available in the event of any instability.

    This was the BOE’s final meeting before the current 31 October Brexit deadline, which comes as the prospects of leaving without an agreement start to rise and businesses attempt to navigate unstable economic terrain. 

    The uncertainty comes due to the rejection of Prime Minister Boris Johnson's Brexit proposals by the EU as Johnson, who has ruled out an extension beyond 31 October, seeks to provide an alternative to the Irish Backstop in former PM Theresa May's Withdrawal Agreement, which the EU has said is the only deal available.

    Britain's Prime Minister Boris Johnson holds his notes as he attends a news conference with German Chancellor Angela Merkel at the Chancellery in Berlin, Germany August 21, 2019.
    © REUTERS / Fabrizio Bensch
    Britain's Prime Minister Boris Johnson holds his notes as he attends a news conference with German Chancellor Angela Merkel at the Chancellery in Berlin, Germany August 21, 2019.

    Predictions of an economic shock also come as the UK experiences its worst decline in productivity in five years, according to a recent report by the Office of National Statistics. 

    The poor quarterly growth figures follow reports showing two consecutive quarters of falling or stagnating growth rates in spite of high unemployment

    While most economists predict that a no-deal Brexit will harm the British economy in the wake of the imposition of tariffs and restrictions on currently porous trade are erected, the UK has experienced stagnant productivity rates since the 2008 financial crash.

    In a separate statement in September, the BOE blamed the uncertainty around Brexit for the sluggish growth rates by discouraging investment in equipment and software and instead prioritising hiring more people as they can be let go if revenue drops.

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    Brexit, no deal, financial sector, Bank of England
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