by Andy Bruce and Huw Jones
LONDON, July 5 (Reuters) – The Bank of England (BoE) warned on Tuesday that the economic outlook both in the UK and globally had deteriorated since the start of the year and asked banks to increase their capital reserves to ensure that they could withstand the shock.
“The global economic outlook has deteriorated markedly. Overall global financial conditions have tightened significantly,” Boe Governor Andrew Bailey said at the press conference following the release of the half-yearly stability report. financial.
The evolution of the war in Ukraine will be decisive, the institution stressed.
UK banks are well placed to weather even a severe economic downturn, the BoE said, noting however that their CET1 solvency ratios, while still strong, are expected to decline slightly over the coming quarters.
Members of the Financial Policy Committee confirmed that the BoE would double the countercyclical capital buffer (CCyB) rate imposed on banks to 2% in July 2023 and indicated that it could vary this rate depending on of developments in the global economy.
Despite the cost of living crisis, the BoE said banks were weathering vulnerability from household and corporate debt well.
The central bank expressed concern about the health of major financial markets.
“Amid high volatility, liquidity conditions have deteriorated even in traditionally highly liquid markets such as US Treasuries, gilts,” the BoE said.
The institution stressed that the main British markets, while remaining functional, had become more expensive and that it would conduct a thorough analysis of the functioning of the commodity market, as metals trading had been severely disrupted by the war in Ukraine.
Annual stress tests for major UK banks, delayed due to the conflict, will begin in September with results likely to be released in mid-2023.
(With David Milliken and William James, French version Laetitia Volga, edited by Jean-Stéphane Brosse)