Bank Of England Signals £150bn Lending Boost

The Bank of England is to ease rules for banks following the EU exit vote, in a move that will allow them to increase lending to households and businesses by up to £150bn.

Measures announced in the Bank's Financial Stability Report are designed to dampen the impact of financial market uncertainty caused by the poll result on the real economy.

With (Other OTC: WWTH - news) the pound at a 31-year-low against the US dollar, Bank governor Mark Carney said: "The UK has entered a period of uncertainty and significant economic adjustment."

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Mr Carney said that the number of vulnerable households could increase due to a tougher outlook and a potential tightening of credit conditions.

He said the Bank would not be able fully to offset the volatility caused by the Brexit vote and that the future for the economy and jobs, wages and wealth would be driven by major decisions made by other officials and private companies.

"However, by promoting monetary and financial stability, the Bank of England can help facilitate these decisions, smooth the necessary economic adjustments and help UK households and businesses seize new opportunities," he added.

"These efforts will mean we can all look ahead, not over our shoulders."

Chancellor George Osborne - who met the bosses of major banks in Downing Street to discuss the referendum result - said the Bank's action was an "important move", adding on Twitter (Xetra: A1W6XZ - news) : "We need great national effort to steer UK through."

The measures easing rules for banks are designed to prevent financial market volatility from feeding through to the real economy causing the availability of credit for households and businesses to seize up as it did during the financial crisis.

They will reduce by £5.7bn the "capital buffers" that banks must hold - relaxing rules that have been tightened over recent years in the wake of the financial crisis - until at least June 2017.

This will raise banks' capacity for lending to UK households and businesses by up to £150bn, the Bank said.

The new measures are separate from plans likely to be announced later this summer by the Bank on monetary policy stimulus - rate cuts or pumping billions into the economy - to cushion the Brexit blow.

More widely in the latest report, the Bank's Financial Policy Committee (FPC) said there was evidence that risks predicted ahead of a potential Brexit vote had "begun to crystallise".

It said: "The current outlook for UK financial stability is challenging."

Mr Carney warned there was growing evidence that uncertainty ahead of the vote had delayed major decisions such as business investment, construction and the housing market.

He also pointed to a hit to commercial property and a sharp drop in the share price of property investment trusts after the referendum. The remarks came as Standard Life (LSE: SL.L - news) suspended trading in its British real estate fund.

Mr Carney stopped short of repeating an earlier warning that a Brexit vote would cause a recession, but he did say there was the "prospect of a material slowing of the economy".