DM BRIEF: BOE Sees Increased Financial Stability Risks

Risks to financial stability have increased during 2025 and global risks remain elevated and material uncertainty in the global macroeconomic outlook persists, the Bank of England's latest Financial Stability Report says

 Key sources of risk include geopolitical tensions, fragmentation of trade and financial markets, and pressures on sovereign debt markets. Elevated geopolitical tensions increase the likelihood of cyberattacks and other operational disruptions, the report published Tuesday noted. "In the FPC’s judgement, many risky asset valuations remain materially stretched, particularly for technology companies focused on Artificial Intelligence (AI). Equity valuations in the US are close to the most stretched they have been since the dot-com bubble, and in the UK since the global financial crisis (GFC). This heightens the risk of a sharp correction.

The UK banking system remains well capitalised. Major UK banks continue to report robust earnings, and their average price-to-tangible book (PtTB) ratios have increased further above 1 since the July FSR. UK household and corporate aggregate indebtedness also remains low, with the share of households in arrears on their borrowing or with high debt-servicing burdens is low by historical standards. However, some groups are more vulnerable to economic shocks than others, with renters remaining under pressure.