Bank of England prepares armoury for Brexit disorder, Covid-19 crisis

Governor Andrew Bailey said the central bank had done all it could to mitigate risks from a no-deal departure from the EU on December 31, and it was ready to deal with any market disruptions

The Bank of England (BoE) took steps on Friday to keep banks lending through 2021 as Britain grapples with the Covid-19 pandemic and braces for any market disruption from a big change in the UK's trading relationship with the European Union (EU).

Governor Andrew Bailey said the central bank had done all it could to mitigate risks from a no-deal departure from the EU on December 31, and it was ready to deal with any disruptions to financial markets.

“What has the Bank of England got in its armoury, as it were? The answer is a lot. We will use our tools, as we did in March, should we be in that situation,” Bailey said.

The BoE ramped up market liquidity auctions at the start of the pandemic, as well as cutting interest rates to a record low and restarting its asset-purchase programme.

Market disruptions would not threaten financial stability, but Bailey warned that some EU customers might be unable to access British financial services because the EU had not taken mitigating action.

“There is a limit to what we can do,” Bailey said.

Market volatility could be reinforced by some derivative users not being fully ready to trade with EU counterparties or on EU-recognised trading venues, the BoE said.

“Financial institutions should continue taking measures to minimise disruption,” the British central bank said.

Prime Minister Boris Johnson said on Thursday that there was a “strong possibility” that a post-Brexit transition period would end on December 31 without a deal to avoid tariffs on British exports to the EU.