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Bank of England Warns That UK Is Losing Its Appeal for Foreign Investors

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07/11/2019 | 05:55am EDT

By Jason Douglas

LONDON--Foreign investors are shunning U.K. commercial real estate and high-risk corporate lending, signs that uncertainty over the U.K.'s exit from the European Union is denting Britain's international allure.

The Bank of England warned Thursday that the slide in overseas investment into some British assets due to Brexit poses a risk to the wider economy. But it said British banks are strong enough to withstand an abrupt and messy split with the EU, as well as a global trade war.

The BOE said in a twice-yearly assessment of financial stability in the U.K. that foreign investment into commercial real estate and leveraged loans fell sharply in the first quarter, a reflection of unease among investors over the U.K.'s prospects while Brexit remains unresolved.

The amount of cash that flowed into commercial real estate in the U.K. from overseas in the first quarter of 2019, ahead of the U.K.'s abortive EU exit date on March 29, was 38% of the average quarterly amount in 2018, the BOE said.

For leveraged loans, loans to riskier corporate borrowers, inflows were 17% of the 2018 average, according to the central bank.

The U.K. has long relied on foreign investors to finance its yawning current-account deficit, which, at 5.6% of national income in the first quarter, is the widest among comparable major economies.

Mark Carney, BOE governor, has described the U.K. as being reliant on "the kindness of strangers" to plug the gap between domestic saving and investment, leaving the economy vulnerable to a foreign buyers' strike.

A sharp drop-off in foreign investor appetite for U.K. assets risks pushing up interest rates and slowing the economy, the BOE said.

The central bank's warning comes as the two contenders to succeed Theresa May as prime minister are flirting with the idea of leaving the EU without agreeing withdrawal terms, an outcome the central bank has warned would likely cause economic disruption.

The perceived risk of a no-deal exit among investors has risen, the BOE said Thursday.

Write to Jason Douglas at Jason.Douglas@wsj.com

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(MORE TO FOLLOW) Dow Jones Newswires

07-11-19 0554ET

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