The Bank of England’s (BoE) decision to ease capital requirements has been welcomed by the banking community, but is likely to offer only limited help to trade finance.

In a bid to support lending and dampen shocks following the UK’s vote to leave the European Union, the BoE’s Financial Policy Committee (FPC) reduced the UK countercyclical capital buffer rate from 0.5% to 0% with immediate effect, and said it expects to hold this rate until at least June 2017.

According to the BoE, the rate reduction equates to around £5.7bn and raises banks’ capacity to lend by up to £150bn. Considering that the UK’s total net lending was £60bn last year, when the country had a fully functioning banking system and was one of the fastest-growing economies in the G7, this is seen as significant relief.

“It means that three-quarters of UK banks, accounting for 90% of the stock of UK lending, will immediately – immediately – have greater flexibility to supply credit to UK households and firms,” said BoE governor Mark Carney at a news conference following the release of its six-month financial stability report.

However since the removal of the buffer applies only to UK lending, and it is reasonable to assume that much of the trade finance lending undertaken by UK banks will be to overseas counterparties, it is unlikely to offer any capital relief to the export finance sector, IHS Global Insight economist Brian Lawson tells GTR.

He also points out the while acknowledging what the bank has done, it is also important to stress what it admitted it could not do.

“It has eased the capital requirements for UK lending, such that with the same capital base, UK banks now could lend £150bn more to UK businesses and households without needing extra capital, if they elect to do so.

“However, it admitted that it was not able to increase demand for borrowings with this measure. Nor can it necessarily increase supply of funds. If banks decide that credit conditions will deteriorate because of Brexit, they may lend less rather than more, to reflect their prevailing views of credit risks despite the lower buffer.”

Still, the move was welcomed by the British Banking Association (BBA). “This will boost confidence in the British economy at this time of uncertainty, by enabling banks to lend more to businesses and households,” says BBA chief executive Anthony Browne.

The BBA’s comments are echoed by Aberdeen Asset Management (AAM) investment manager James Athey, who explains: “These measures are really about Carney aligning the Bank of England’s guns in case the UK economy enters a downturn. Markets are going to be reassured by his proactivity.”

Viewed in a wider policy context, the bank’s measures could become more encouraging for trade finance.

With the governor stating that the BoE would take whatever steps were needed to keep the economy afloat, Lawson expects to see an interest rate cut to 0.25%, and increased levels of quantitative easing soon (July or August).

“So the package should lead to a lower rate environment, with higher bank capital capacity to lend, and more intervention by the BoE to underpin markets,” he says.

“As such, its steps are designed to be generally credit-friendly, and that could be of help to trade funding. It’s more the overall policy direction that will be of help, rather than yesterday’s (July 5) move in isolation.”