Bank of England official warns UK reliant on ‘flighty’ capital
A Bank of England (BoE) official has today warned that since the Brexit referendum in 2016 Britain’s economy has become vulnerable to foreign money being withdrawn at short notice.
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Anil Kashyap, a member of the Bank’s financial policy committee (FPC), also warned that cyber attacks posed a threat to the UK’s financial stability.
Kashyap’s warnings came in a written statement to parliament’s Treasury Committee, which was scrutinising his reappointment to his BoE post.
The pound today hit a fresh 2019 low as former foreign secretary Boris Johnson’s leadership campaign went from strength to strength – ramping up the chances of a no-deal Brexit. The fall demonstrated unease in global markets at Britain’s trajectory.
Britain has a significant current account deficit, meaning more money is leaving the country for things like goods and services and investment payments than is coming in. The UK relies on foreign investments in finance and in companies to pay for the deficit.
Kashyap said he thought “a current account deficit is not necessarily a problem per se”. But he said: “I do worry about the composition of the foreign capital that the UK relies on. Right now the stock of foreign funding is potentially more flighty than it was in 2016.”
“To the extent that some of this flighty funding is going to the financial system and could be withdrawn at short notice this could create cause for concern,” he said in his written statement to the Committee.
Kashyap said: “I also worry about cyber risks a lot, in part because breaches are inevitable.” He said the BoE was carrying out a “pilot stress exercise” to monitor cyber risks.
“A disorderly Brexit still represents one of the most significant financial stability risks to the economy,” Kashyap said.
Read more: Sterling falls to fresh 2019 low as Boris Johnson gets leadership boost
He added that “risks emanating from the situation in Italy” were “a worry”. He said: “Those seem to have become even more salient in light of the European Parliament election results” that saw Italy’s right-wing Lega party storm to victory.