The Bank of England has warned over a potential credit crunch and urged lenders to bolster their balance sheets ahead of the EU referendum.
The UK’s Bank’s Financial Policy Committee (FPC) said the UK banking sector was “resilient”, but said heightened uncertainty triggered by Britain’s forthcoming referendum on EU membership posed a risk to financial stability.
It said the value of the pound – which plummeted earlier this year amid Brexit fears – could weaken even further and impact the cost and availability of finance for UK borrowers.
The concerns come amid a backdrop of tough trading for the banking sector, which has seen its profits come under pressure as interest rates have remained stubbornly low across major economies.
In the minutes from its latest policy meeting, the FPC said: “The committee assesses the risks around the referendum to be the most significant near-term domestic risks to financial stability.”
The FPC said: “Looking ahead, heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of UK assets, which could lead to a further depreciation of sterling and affect the cost and availability of financing for a broad range of UK borrowers.”
It added: “In addition, the impact of a decision of the United Kingdom to withdraw from the European Union could spill over to the euro area, driving up risk premia and further diminishing the prospects for growth there.”