Banks will gain access to additional Bank of England funds from next month to prevent a financial shock should the UK quit the European Union without a deal.
While it remained unclear whether the UK would leave on 29 March or if parliament would vote to delay Brexit, the central bank said it would allow financial institutions to access cash on a weekly basis rather than the usual monthly system.
The Bank of England governor, Mark Carney, played down the significance of the move, saying it was part of “normal contingency planning”.
He added: “In the run up to the referendum we moved to weekly sterling auctions and held it for several months after the referendum. There is no signal in it, except that it is part of normal contingency planning.”
About 100 banks and building societies would be eligible to access up to £300bn of cash for six months in return for high-grade mortgages and other financial assets, Carney said.
“We are not seeing any liquidity stresses in the market,” he said, adding that commercial banks seeking central bank funds in recent auctions were only paying a couple of basis points, or fractions of a per cent, above the 0.75% bank rate.
However, the announcement emphasised that Threadneedle Street was concerned about a no-deal Brexit and the potential for a credit crunch to bring the banking system to its knees as it did during the 2008 financial crash.
In recent months Carney has pushed European and US regulators to agree contingency arrangements to cope with a no-deal Brexit to make sure financial markets were able to continue trading without interruption.
On Monday, the Bank of England, the Financial Conduct Authority and the US Commodity Futures Trading Commission agreed that firms working in the US and the UK would continue to meet the requirements required to operate in both countries, even if the UK exited the EU without a deal.
City analysts said the move would protect London from losing trillions of pounds of complex financial derivatives business after Brexit.
Carney said the UK’s banking sector holds around £1tn in cash or similarly liquid assets, four times the level ahead of the 2008 crash.
But he emphasised his concern at the prospect of a no-deal Brexit, saying: “If we come back in May and there’s no deal I guarantee you we will come back with a lower GDP forecast.”
He warned that delaying the UK’s exit was not as good for the economy as reaching a deal. He said: “There’s a big difference between an extension of article 50, even a long extension, and an agreement with a transition to a known end stage.
“Wherever we’re headed, it would serve the economy well to have a transition period to that new world, so that people knew soon where they’re headed, businesses could reorganise their affairs and get ready for this new world, and government could finish its tasks.”
Bookmakers have marked down the possibility of Britain leaving the EU on 29 March to just 14% after Labour’s move to block Theresa May’s deal by favouring – if the party’s Brexit plan failed to gain a majority – a second referendum.
Earlier this month Carney questioned the path of globalisation, which he argued was dividing nations and causing enough political stress to hamper global growth.
He said Brexit was an acid test of whether it was possible to reshape globalisation in a way that offered the benefits of trade while allaying public fears about the erosion of democracy.
