LONDON – Political risk is the biggest threat to the UK’s financial stability, according to a Bank of England survey.
More than half of all respondents to the central bank’s systemic risk survey cited UK politics as their chief concern for the stability of the financial system.
The survey took responses from 94 market participants, including hedge funds, banks, building societies and central counterparties.
86% of them cited UK politics as a source of risk to the financial system, compared with 37% for a global recession and 34% for cybercrime.
Here is the chart:
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Prime Minister Theresa May’s government is tasked with taking the UK out of the European Union in a way that satisfies those who voted to leave without destroying the UK’s international trade and finance links.
It won’t be easy. Already EU leaders have dismissed the UK’s attempts to “have its cake and eat it” in the run up to the start of negotiations.
While participants in the survey thought a collapse would not be imminent, more people thought that a “high-impact event” would occur in the medium term – within three years.
“The perceived probability of a high-impact event in the UK financial system over the short term has fallen,” the BOE wrote.
“The perceived probability of such an event over the medium term has risen considerably. 43% (-14 percentage points since the 2016 H1 survey) of respondents now consider the probability of a high-impact event as high or very high over the next twelve months; 63% (+26 percentage points) between one and three years ahead.”
Here is that chart: