Markets could face sharp correction, Bank of England warns

0
16
imageEconomy2 hours ago (Oct 08, 2021 12:25)

© Reuters. FILE PHOTO: View of Canary Wharf business district at dusk in London, Britain March 9, 2021. REUTERS/Peter Cziborra

By Huw Jones

LONDON (Reuters) -Stock and bond markets could correct sharply if investors reassess the prospects for the economy’s recovery from COVID-19 and there are signs of increased risk-taking at investment banks, the Bank of England said on Friday.

The BoE’s Financial Policy Committee (FPC) said in a statement after its October meeting that there was still evidence of elevated risk-taking in a number of financial markets such as shares, bonds and leveraged loans, relative to historic levels.

Stock indexes have hit record highs in recent months as investors bet on a strong recovery after the pandemic, but more recently inflation has become a worry and growth has become patchier in the face of supply side bottlenecks.

Households in Britain and beyond are facing an additional squeeze on their spending power from a surge in energy prices at a time when government support, introduced to households and business when the pandemic began, is being phased out.

“Asset valuations could correct sharply if, for example, market participants re‐evaluate the prospects for growth, inflation or interest rates,” the statement said.

“There are signs of continued loosening in underwriting standards and increased risk-taking in some investment banking businesses.”

Routine supervision and regular stress testing are being used to monitor the risk-taking, but banks remain resilient, paying out 2.3 billion pounds in dividends in the first half of this year, it added.

The FPC noted uncertainty over how Evergrande Group, one of China’s biggest property developers, can meet its financial obligations.

“A disorderly failure could pose risks to the wider property sector in China with potential spillovers internationally,” it said. But this year’s stress tests by the BoE of banks had shown UK lenders would cope with a severe downturn in China and Hong Kong and sharp adjustments in global asset prices, it added.

While growth in house prices had reached levels last seen before the financial crisis over a decade ago, there was little evidence of a decline in lending standards, the FPC said.

Debt servicing remained affordable for most businesses, it added.

Markets could face sharp correction, Bank of England warns

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

LEAVE A REPLY

Please enter your comment!
Please enter your name here