The Bank of England’s (BoE) Financial Policy Committee (FPC) has warned the EU referendum could create another credit crunch.
Minutes published today from the FPC meeting held on 23 March show the committee, which monitors the state of the UK economy, views the upcoming referendum as the ‘most significant’ risk to the UK’s financial stability.
It warned the referendum could make it harder for people to borrow money, particularly if the UK voted to leave and entered a period of uncertainty.
‘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,’ he said.
It said uncertainty around the EU referendum could hit funding markets across the EU, as well as in the UK. This would have a knock on effect for lending.
‘Heightened uncertainty could test the capacity of core funding markets at a time when the liquidity of these markets has shown signs of fragility across advanced economies,’ it said.
‘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.’
Source: New Model Adviser