UK Banks Brace For $14.5 Billion Capital Demand From BOE

Bank of England financial stability report

It said the financial policy committee (FPC), headed by Bank governor Mark Carney, was continuing to work on contingency planning for a "range of possible outcomes" of Brexit negotiations.

At the time of writing this article, the Pound US Dollar exchange rate trended in the region of 1.2815. "Nevertheless, there are pockets of risk that warrant extra vigilance", said Carney. So either those rates should rise, or asset prices should fall.

Consumer credit is growing at around 10 percent a year, a pace not seen since before that financial crisis and the move is widely seen as precautionary in light of rising inflation, a possible hike in rates and the impact of this on the main driver of the United Kingdom economy, consumer demand.

Support is at the previous high of 1.2820.

After losing more than 2 percent against the dollar when Prime Minister Theresa May lost her parliamentary majority in the June 8 election, the pound has recovered as BoE officials bent towards raising record low interest rates.

Speaking to hundreds of auto finance industry leaders at the event in London, he said: "We are a systemically important market to the United Kingdom consumer and we are fast becoming the biggest source of non-mortgage borrowing in the UK". Potential house buyers may also be concerned by signs that the Bank of England could be near to hiking interest rates.

The Bank's Money and Credit report showed credit card borrowing increased by £419 million in May, which was lower than a £558 million increase in April.

Other recent economic data has been mixed with figures from the British Bankers' Association earlier this week painting a more subdued picture of consumer and home loans.


Mark Carney said rates could go up if wages increase and businesses starts investing more.

However, since the last vote chief economist Andy Haldane has stunned markets by declaring he will probably vote for a rise later this year.

Carney said the FPC's action did not in itself imply that monetary policy was also about to tighten.

Last week, BoE official Andy Haldane, a long time policy dove, suddenly turned hawkish and hinted at raising United Kingdom interest rates in 2017.

By the time the BOE considers raising the buffer rate to 1 percent, it will be able to factor in the results of its 2017 stress test of major United Kingdom banks.

"We note that the Bank's hypothetical modelling of a fall in used vehicle values going well beyond anything seen historically - even during the financial crisis - nonetheless shows a relatively modest impact on capital ratios".

The cost of living hit its highest level in almost four years at 2.9% in May, with the Bank expecting inflation to peak at 3% by the autumn.

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