On May 7, the Bank of England (BoE) published an interim financial stability report setting out its view of the performance of the UK’s financial system during the COVID-19 pandemic and the outlook for the UK’s financial stability, including its assessment of the resilience of the UK financial system (the Financial Stability Report). The BoE also published its quarterly monetary policy report that sets out its response to the COVID-19 pandemic in relation to the BoE’s interest rate and the UK’s level of inflation (the Monetary Policy Report).

The BoE notes that, as a result of the impact of the COVID-19 pandemic, investors have sold certain assets in order to obtain short-term highly liquid assets and cash. The BoE and other central banks have introduced a number of measures to meet the increased demand for cash and to calm the financial markets.

The BoE highlights that the UK government has provided the Coronavirus Job Retention Scheme to reduce the unemployment rate and protect household incomes. The BoE notes that it is in the collective interest of the banking system to continue to support the government schemes in place to provide credit to businesses to help them weather the current economic disruption. Failure to do so could trigger higher cash flow deficits, further losses for banks and businesses and an increase in unemployment.

In the Financial Stability Report, the BoE has advised that while there may be a need for short-term re-prioritization, market participants should remain focused on the continued importance of removing reliance on Libor by the end of 2021.

In the Monetary Policy Report, the BoE notes that it will maintain its interest rate at 0.1 percent and continue with the £200 billion UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645 billion.

The Financial Stability Report is available here.

The Monetary Policy Report is available here.