Bank of England Flags Rising Leverage and Private Credit Risks

The Bank of England used its latest Financial Stability Report to warn that pockets of the financial system have become more vulnerable, even as it judged the core of the UK system resilient enough to withstand shocks. The central bank's Financial Policy Committee flagged rising leverage in several markets as a growing concern, including in core government bond markets, where trading structures have changed substantially, and in equity markets, where borrowing by hedge funds and exposure through exchange-traded funds have increased. Policymakers also pointed to the rapid expansion of private credit and to stretched asset valuations, cautioning that such conditions can amplify losses and turn what look like isolated 'tail risks' into broader problems if sentiment shifts. Governor Andrew Bailey has stressed that the Bank is monitoring whether these vulnerabilities could move from the margins into something more systemic, particularly against a backdrop of geopolitical tension and higher energy prices. The report reflects a cautious message that, while banks and households remain in reasonable shape, authorities are watching closely and stand ready to respond.