In its regular bulletin on year 2000 preparations, out today, the Bank acknowledges there is a real risk of market disruption in the run-up to the millennium.
Bank officials are determined to ensure there are no major hitches, and are discussing detailed contingency plans with the major financial institutions.
"We recognise there is a specific issue and we recognise the concerns of market participants," said John Trundle, head of the Bank's market infrastructure division.
The Bank's main worry is that uncertainties over year 2000 readiness will deter markets from lending to otherwise credit-worthy institutions. Collectively, this drying up of credit could result in low levels of market liquidity, which, in turn, could prompt excessively volatile movements in interest rates.
"It is part of our role to ensure liquidity shortages do not lead to market disruption," the Bank said.
The Bank is considering a two-pronged strategy to counter these problems. First, it is encouraging market participants to swap information in an attempt to eliminate uncertainty about year 2000 readiness. Second, it will be on stand-by over the millennium weekend to inject liquidity into the markets if problems do occur.
From a technical perspective, the Bank is confident the UK financial sector is on track for year 2000 compliance, despite the Financial Services Authority's recent finding that 12 of the largest financial institutions were behind schedule.
Mr Trundle said: "Their assessment [the FSA's] and ours are essentially the same. With so many institutions, it would be surprising if there were not one or two behind the game."
The Bank believes the millennium poses little risk to the UK's economic health, an assessment that has been challenged by several UK experts.
In a report out today, the Centre for Economics and Business Research warns that running down of stocks and scaling back of IT investment could wipe as much as 0.8 percentage points from growth in 2000.Reuse content