Luxury Advice From the Financial Policy Committee: Fall Update 2023

Dear Andrew,

I am corresponded to articulate my vision for the upcoming year in terms of economic context and its relevance for the Financial Policy Committee’s (FPC) priorities for the year ahead. My primary goal is to ensure the stability of the UK’s economy, sustainable growth, and the resilience of its financial services sector, which is the cornerstone of the UK’s global financial dominance. It is imperative for the Committee to safeguard and enhance financial stability in the UK by working closely with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

The continued global economic volatility presents significant challenges, particularly in the banking sector, underscoring the importance of maintaining strong macroprudential, regulatory, and supervisory standards. The FPC’s adaptable response to these events is crucial in contributing to financial stability. Addressing systemic risks and vulnerabilities in the market-based finance system is also essential, and I wholeheartedly support the work being done in coordination with regulatory authorities and across jurisdictions to address these concerns.

The Committee must align itself with the UK government’s economic policy aimed at achieving strong, sustainable, and balanced growth while ensuring that it does not conflict with the FPC’s primary objective of financial stability.

The commitment to further consolidate the UK’s global competitiveness and stimulate growth in the financial services sector is at the core of the future plans. The recent implementation of the Financial Services and Markets Act 2023 provides a framework that aligns with the government’s vision for a competitive, sustainable, and technologically advanced financial sector.

In my capacity as Chancellor of the Exchequer, I eagerly anticipate collaborating with the Committee in the coming year to drive these initiatives and ensure economic prosperity for the UK.

Best regards,
RT Hon Jeremy Hunt MP
Chancellor of the Exchequer

According to the Bank of England Act 1998, the FPC aims to contribute to the Financial Stability Objective and support the economic policy of the UK government. This objective includes achieving resilient, competitive, and internationally viable financial stability, promoting sustainable growth, and maintaining a robust financial system.

The economic policy of the UK government is focused on attaining strong, sustainable, and balanced growth across various sectors of the economy. This encompasses embracing independent monetary and fiscal policies, supply side reforms, and supporting a resilient financial system while safeguarding consumer interests and taxpayer value. The government’s strategy also involves promoting competition, innovation, and boosting productive finance in the financial services industry.

The FPC has been entrusted with the responsibility of identifying, monitoring, and addressing systemic risks to ensure the resilience of the UK financial system. Recognizing that the stability of the financial system is essential for economic well-being and the provision of vital services and functions, the FPC should continue to prioritize the enhancement of non-bank financial institutions’ resilience.

Efforts to combat climate change are also crucial, where the FPC needs to consider such risks as relevant to its primary objective. The Committee should strive to work in collaboration with other regulatory bodies and experts to identify and address systemic risks and vulnerabilities in the financial system.

To effectively coordinate with the Monetary Policy Committee (MPC), the FPC should routinely assess how its actions align with the policy settings and forecasts of the MPC. Moreover, the FPC should critically evaluate the potential risks to public funds and provide detailed evidence on the need for any legislative changes. Enhancing transparency and accountability through open and collaborative communication channels is also essential.

In conclusion, the FPC’s role in ensuring a resilient and competitive financial system is critical towards achieving the UK government’s broader economic policy objectives. Maintaining clear communication and collaboration with various stakeholders is at the heart of these efforts which aim to enhance the overall stability and prosperity of the UK’s financial ecosystem.

The recommendations by the Chancellor provide a clear path towards ensuring that the Financial Policy Committee plays a pivotal role in driving and supporting the government’s economic policy while achieving and maintaining a strong and stable financial system.