LONDON – The Bank of England is reminding British banks to prepare for the possibility that the U.K. and the European Union will fail to agree on a trade deal by the end of the year, amid few signs of progress in discussions between the two sides.
In a statement Wednesday following reports that its governor, Andrew Bailey, is asking banks to step up their preparations for a “no-deal” scenario, the Bank of England said it is “fundamental” that it prepares the financial system for “all risks that it might face.”
“In performing that role, the Governor meets the leadership of U.K. banks on a very regular basis," it said.
"As we have said previously, the possibility that negotiations between the U.K. and EU over a future trading relationship might not conclude in a deal is one of a number of outcomes that U.K. banks need to prepare for over the coming months.”
Though the U.K. left the EU's political institutions in January, it remains within its economic orbit — the tariff-free single market and customs union — until the end of the year.
The country has an option to extend this so-called transition period designed to smooth the Brexit process, but Prime Minister Boris Johnson has insisted he won't be asking for a delay. Any request has to be made by July 1.
Discussions over a trade deal have made little headway, with both sides arguing that the other is creating unnecessary obstacles. The British government says the EU is being unreasonable on fishing rights, for example, while the EU counters that the U.K. is trying to cherry-pick the best parts of being a member of the bloc.
And that's raised concerns that the British economy faces the prospect of a ‘no deal’ scenario at a time of acute stress related to the coronavirus pandemic.