The Bank of England’s latest financial stability report highlights ongoing risks to the economy from both domestic and global events.
The report points to "global vulnerabilities" in the sector, including "policy uncertainty" linked to upcoming elections in the UK, France, and the United States. The financial policy committee warns of the potential for a "sharp correction" in asset prices, which have seen significant increases in recent years.
While the report presents a generally positive view of the UK financial system's resilience, it notes that many households may face significantly higher mortgage repayments, potentially rising by 50% or more. However, the committee believes this impact will be mitigated by strong income growth and a robust labour market.
The banking sector received a positive assessment, as did the portion of the pensions industry affected by the Liz Truss mini-budget. Nonetheless, emerging stress points in the global financial network remain, particularly with elections around the world contributing to market volatility in 2024.
The Bank of England stated, "Policy uncertainty associated with upcoming elections globally has increased. This could heighten existing sovereign debt pressures, geopolitical risks, and risks linked to global fragmentation, making the economic outlook less certain and causing financial market volatility."
