The Bank of England (BOE) has told UK lenders they should get ready for the possibility of a no deal Brexit at the end of this year.
A spokesperson for the central bank said in a statement on Wednesday that UK banks “need to prepare” for the possibility that trade talks between the UK and EU will fail.
The statement was issued in response to a report from Sky News, which said BOE governor Andrew Bailey had held a call with bank leaders and told them to accelerate planning for no deal.
“It is fundamental to the Bank of England’s remit that it prepares the UK financial system for all risks that it might face,” a spokesperson for the Bank of England said in a statement emailed to the press. “In performing that role, the Governor meets the leadership of UK banks on a very regular basis.
“As we have said previously, the possibility that negotiations between the UK and EU over a future trading relationship might not conclude in a deal is one of a number of outcomes that UK banks need to prepare for over the coming months.”
Banking stocks had slipped slightly on the Sky News report, which was published late morning on Wednesday, but had largely recovered by lunchtime. RBS (RBS.L), Barclays (BARC.L), and HSBC (HSBA.L) were all trading over 2% higher by 11.50am UK time and Lloyds (LLOY.L) was up 4.7%.
The EU and UK have until the end of 2020 to agree on a post-Brexit trade deal. Both sides can agree to extend the negotiating timetable but must decide to do so by the end of June. The UK has repeatedly said it will not agree to any extension.
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Talks so far have left both sides frustrated. Michel Barnier, the EU’s chief negotiator, said he was “disappointed by lack of ambition on the UK side” and David Frost, the UK negotiator, said there was a “big gap” between the EU and UK’s positions.
If a deal can’t be reached, the UK will revert to trading with the EU on World Trade Organisation (WTO) rules. The latest round of negotiations began on Tuesday.