Without a permanent emergency lending facility to support the banking sector, the UK could suffer another Northern Rock-style collapse, it said.
The report's findings follow research that shows the UK's economy is one of the most open in the world, and that the drop in output after Lehman Brothers went bust was mostly due to "global influences". The research also found that around two thirds of the weakness in the level of UK output since 2007 can be attributed to "world shocks".
It said: "The UK economy is closely integrated with the rest of the world through the trade of goods and services, and the exchange of financial assets. This interconnectedness means that the UK economic environment is shaped, in part, by events in the wider global economy. These events can be external to the United Kingdom, or common to many economies, including the United Kingdom."
With so many external influences on the UK economy and its financial sector, banks remain vulnerable to funding shortages, it said.
The report is likely to be seen as confirmation that the Bank's immediate response to the crisis was flawed.
Last year the Winters review lambasted the Bank for restricting emergency funds at the height of the financial crisis because it feared rewarding reckless banks and undermining "moral hazard".
The review argued that the central bank should maintain close links with the banking sector, monitoring its activities and providing funds when they are in short supply on global money markets. It said Threadneedle Street should drop concerns about moral hazard in the midst of a crisis.
The Bank's latest report agrees with Winter's criticism that the central bank should keep open a funding window to cope with periods when credit is difficult to come by.
The report, How Have World Shocks Affected the UK Economy? found that integration into the global economy is estimated to have benefited growth considerably for much of the two decades prior to the crisis. But global influences drove the bulk of the decline in UK output during the 2008/09 recession, deducting over 6 percentage points from annual UK GDP growth at the height of the downturn. Global shocks also held back the recovery during 2011–12.
"Overall, world shocks are estimated to account for around two thirds of the weakness in the level of UK output since 2007," said the Bank. Without them, output would be 11% higher than the figure reached at the end of 2013.
It has always been the Bank's view that the 2008 crisis was caused by banks with unduly large overseas liabilities and not domestic pressures. Former governor Mervyn King was quick to point the finger at the banks for failing to act responsibly.
King also argued that the UK's unusually high inflation during two periods after the crash were driven by external commodity price pressures and that the Bank should resist raising interest rates as more expensive credit would make little difference to inflation, but would plunge the economy into another recession.
The report found that external influences fed into the UK economy via international trade, as demand for UK exports weakened and UK import prices increased. But most harm to growth came from volatile financial markets and uncertainty driven by the euro crisis.
guardian.co.uk © Guardian News and Media Limited 2010
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