Bank of England says UK's reliance on 'kindness of strangers for finance is rising

A bird flies past The Bank of England in the City of London, Britain, December 12, 2017. REUTERS/Clodagh Kilcoyne

LONDON, (Reuters) - Britain’s reliance on the “kindness of strangers” to finance its large current account deficit appears to be increasing, the Bank of England said on Friday.

The central bank’s Financial Policy Committee (FPC) also said it saw signs that risk appetite in Britain’s mortgage market was rising as more loans are granted close to the BoE’s loan-to-income ratio ceiling of 4.5.

“Over recent quarters (the current account) deficit has been increasingly funded by capital inflows - rather than sales of foreign assets by UK residents - thus increasing the UK’s reliance on the confidence of foreign investors,” the BoE said in a statement on the FPC’s policy meeting on March 12.

BoE Governor Mark Carney has said previously that Britain is reliant on the “kindness of strangers” to finance its current account deficit, which the central bank is keeping an eye on as Britain nears its exit from the European Union.

The FPC said Britain’s banking system could continue to support the economy through a disorderly Brexit, and that these risks did not warrant additional capital buffers for banks.

The scenario behind the annual stress tests of leading British banks will be the same in 2018 as they were last year, although they will reflect the introduction of new accounting rules that force banks to provision earlier for souring loans.

The pass hurdle for systemic banks was below 8 percent of risk-weighted assets in 2017, but this year will be above that level.

The BoE repeated its view that crypto assets do not currently pose a material risk to financial stability.

Overall, the domestic risks to financial stability remained standard in Britain, although it noted that global risks were material. It pointed to building corporate debt market risks in the United States and financial vulnerabilities in China.

Reporting by Huw Jones and Andy Bruce