UK BOE Financial Stability Report

Risks to the UK financial system are broadly unchanged since Q1. But some asset prices have continued to rise and the risk of a sharp correction persists. The risk environment is broadly unchanged since Q1 2024. The prices of many assets such as shares and bonds remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets are continuing to expect the economy to recover and inflation to fall. They are placing less weight on risks, such as geopolitical developments or ...

The outlook for global economic growth remains subdued. A number of risks could weaken growth further, including persistent inflation, higher interest rates, and increased geopolitical tensions. Currently, financial markets are not expecting further increases in Bank Rate; although interest rates will likely need to stay high for some time to make sure inflation continues to fall. Interest rates on longer-term government bonds are back to where they were before the global financial crisis. These interest rates act as a benchmark for ...

The Financial Policy Committee (FPC) works to ensure the UK has a stable financial system. A stable financial system enables households and businesses to make payments, manage their savings, borrow money, and guard against risks. It can withstand shocks rather than make them worse. The FPC identifies vulnerabilities and acts to build the resilience of the system. In recent months, interest rates have continued to increase as central banks around the world act to tackle inflation. Since December 2021, the Bank of England interest rate ...

Since our July Financial Stability Report (FSR), the outlook for growth and unemployment in the UK and globally has deteriorated further. Prices have continued to rise rapidly, in considerable part reflecting steep increases in energy and food prices. In response to these price rises, central banks around the world, including the Bank of England, have been increasing interest rates. These rate rises, and the expectation that they will rise further, have caused the cost of borrowing to rise for households and businesses. There have ...

Prices of essential goods such as food and energy have risen sharply in the UK and globally, and the outlook for growth has worsened. This is largely a result of Russia’s illegal invasion of Ukraine. Like other central banks around the world, we have increased interest rates to help slow down price increases. Markets have been volatile and financing conditions have tightened. These higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we ...

Overall, the FPC judges that domestic risks to UK financial stability have returned to around their pre-Covid levels. Risks from global debt remain material. Asset prices in some markets seem stretched, and globally risks from new loans to highly indebted corporates have continued to build. The FPC sets the countercyclical capital buffer (CCyB) each quarter. This provides banks with an additional buffer of capital to absorb potential losses. When the financial system enters a stress, the buffer is released to support banks in lending ...