A key role of the Bank of England is to ensure that our financial system is prepared for these risks over the coming months and years.
We do this so you don’t have to worry and can focus on what matters to you.
Brexit is one of those risks. Our latest review of the largest UK banks and insurers shows that they are strong enough to handle the risk of a very bumpy Brexit, and are much stronger than a decade ago after the financial crisis.
The reason behind this is that we have made the banks hold a lot more capital – so their ability to withstand losses has improved. This means that the UK financial system is ready for Brexit, whatever form it takes.
Another risk comes from outside our shores as global trade tensions increase. You have probably seen news of an escalating trade war between the US and China.
If major economies like these bring in further tariffs or taxes on goods and services bought from other nations, this could lead to slower world growth.
Again, like Brexit, we are prepared for this. We have tested for a trade war big enough to push the world economy into recession. Even if this were to happen at the same time as a disorderly Brexit, our banks could cope and continue to lend to individuals and businesses.
These are the immediate risks on the horizon. But we also need to look to the future.
We are also considering the growing issue of how climate change will impact the economy as the UK aims to move to a carbon neutral footing by 2050.
We will undertake a major review of our banks in 2021, the first of its kind in the world, to check how they are preparing for such risks as extreme weather incidents happening more frequently and reducing the long-term value of some assets that banks have lent against.
While Yorkshire is vulnerable to climate change – for example, with areas prone to flooding – it is also leading the way as our extensive energy industry evolves away from coal to renewables and our world class universities innovate.
The way we all make payments is also changing. We are quickly becoming more digital, whether in coffee shops, pubs or online at home.
The proportion of transactions using cash in the UK has fallen from six in ten payments to just under three over the last decade, and could approach one in ten over the next ten years!
We have been looking at the challenges closely and will work with other central banks and private sector providers to ensure that we enable innovation and empower competition while ensuring such systems are secure and trustworthy, so that the public and companies can continue to use them confidently.
By addressing such risks to financial stability in the near and longer term, the Bank of England is doing its part to serve the interests of the people of the United Kingdom.