Bank of England to review bank buffers after EU referendum

The Bank of England will look again at how much capital it requires banks to hold as insurance against swings in the economic cycle after the vote on Britain’s membership of the EU.

The decision is the latest sign of authorities’ nervousness about the financial stability risks posed by the vote. In March, the BoE said it was preparing to flood the market with money around the June 23 poll to protect British banks from any chance they could run out of funds.

Minutes of the Financial Policy Committee meeting, published on Tuesday, show that some policymakers wanted to move faster in raising the new “countercyclical capital buffer” towards its 1 per cent target.

The committee settled on raising the buffer, which is designed to curb the tendency of lenders to stoke credit booms and amplify the economic cycle, to 0.5 per cent of risk-weighted assets in additional capital rather than the 0.75 per cent some members were arguing for.

It will look again at the requirement in June when the “results of the EU referendum would be known”, the BoE said.

There was more evidence on Tuesday that corporate Britain is putting investment decisions on ice as the polls narrow.

The closely watched Markit/CIPS survey of service purchasing managers has recorded its worst quarter since the start of 2013, with the referendum and global economic uncertainty the two most commonly cited reasons by companies for undermining confidence.

The latest betting market data from IG shows a 64.5 per cent chance the UK will remain in the EU, down from 70 per cent at the start of March. The FT’s poll of polls also suggests the race has narrowed. Currently there is a 45 to 42 split in favour of remain.

The composite of the manufacturing, construction and services surveys suggest that overall economic growth will slow to 0.4 per cent in the first quarter of the year, down from 0.6 per cent in the final quarter last year.

Chris Williamson, chief economist of survey compilers Markit, said the pace of growth was “more likely to ease further rather than recover in coming months as business confidence remains unsettled by worries at home and abroad.”

But there were glimmers of better news in the monthly services data, which rose to 53.7 in March, up from 52.7 in February. Simon Wells, chief UK economist at HSBC, said the rebound was “something of a relief”, but overall service sector activity is growing more slowly than last year.

The service sector accounts for 80 per cent of jobs in Britain and nearly the same proportion in economic output. Aside from sectors like retail and hospitality, it also contains most of the fastest growing parts of the UK economy, including IT and professional services.

Sir Charlie Bean, the former deputy governor of the BoE who has been reviewing official statistics, suggested in March that if all the benefits of the digital economy were fully accounted for, the annual growth rate over the past decade would have been between 0.4 and 0.7 percentage points higher.

The Office for National Statistics on Tuesday published its provisional analysis of “sharing economy” businesses. Of the 50 it studied, the majority were established after 2012 and half were within the business services and finance industry.

It is considering changing the structure of some of its survey questions as well as using web scraping techniques to gather data about company operations.