Bank of England Says Financial System Resilient but Flags Rising Risks

The Bank of England concluded that the UK financial system has remained resilient despite the macroeconomic shock from the Middle East conflict, in its July Financial Stability Report published on July 7. The central bank said banks are well capitalised and that households and businesses show aggregate strength, leaving the core of the system able to absorb shocks. At the same time, it flagged a set of growing vulnerabilities: rising leverage in equity markets, risks building in private credit, and emerging operational risks from frontier artificial intelligence models. The report urged firms to act on a joint statement issued earlier in the year by the Bank, the Financial Conduct Authority and the Treasury on frontier AI, and to strengthen cyber and operational resilience, including through work on the UK's critical third-party regime. It also noted that the energy-driven supply shock had pushed market interest rates higher across advanced economies and lifted government bond yields. The assessment comes with inflation running at 2.8% and the Bank having held its base rate at 3.75%, with its next monetary policy decision scheduled for July 30 amid persistent cost pressures and geopolitical uncertainty.