UPDATE 1-BoE's Cunliffe sees "great deal of pain" for financial sector

(Adds more detail)

By Huw Jones and David Milliken

LONDON, June 9 (Reuters) - The initial shock of the
coronavirus pandemic to Britain's financial system is over, but
another sharp repricing of risk is still possible, Bank of
England Deputy Governor Jon Cunliffe said on Tuesday.

"The COVID crisis is very far from over. The depth and
length of its economic impact remain very uncertain. It is clear
that there is likely to be a great deal of pain for the
financial sector," Cunliffe said.

"However, the first phase - the initial shock and adjustment
to a far more challenging economic outlook in the near term -
has passed," he added at an event hosted by the Investment
Association, a fund management trade body.

Cunliffe said recent economic data pointed to some recovery
in April and May, but it was early days and that he still
thought the central bank's most recent scenario of an
unprecedented fall in output this year looked reasonable.

Negative interest rates remained under review at the BoE,
but views on their effectiveness were mixed and the central bank
would need to take into account the damage they could do to
lenders' business models, he added.

Financial markets saw bouts of extreme volatility in March
as countries went into lockdown to fight the pandemic,
shuttering businesses and paving the way to what is expected to
be the worst economic contraction in Britain in 300 years.

Cunliffe said banks had been able to absorb a very severe
market shock and this should not be put at risk by weakening
their regulation.

Policymakers needed to look at ways to reduce surges in
demand for liquidity and improve the supply of liquidity under
stress, he added.

Some open-ended property funds remain suspended since the
market volatility.

"We should look at the costs and benefits of having more
liquidity resilience in the system," he said.
(Reporting by David Milliken and Huw Jones)