Bank of England warns risks to global economic outlook have risen
Newsflash: Risks to the global economic outlook have increased since last summer, the Bank of England has warned.
In its latest Financial Stability Report, just released, the Bank warns that there are “material” global risks associated with geopolitical tensions, global fragmentation – including reduced co-operation on trade and international policy – and pressures on government debt levels.
The Bank says:
Uncertainty around, and risks to, the global economic outlook have increased. As the UK is an economy with a large financial sector and in which trade is significant, these risks are particularly relevant to UK financial stability.
The Bank singles out events in the Middle East, Russia’s continued war in Ukraine, and US-China relations as sources of material geopolitical risk.
And they cite the risks from disruption to global trade and supply chains. This could hit asset prices, including commodities, and fuel inflationary pressures, “putting upward pressure on interest rates and increasing challenges for households and businesses”.
Key events
Closing post
Time for a recap.
The Bank of England has warned that risks to the global economic outlook have increased.
In its latest financial stability report, the BoE cited the “material” global risks associated with geopolitical tensions, global fragmentation, and pressures on government debt levels.
It warned:
Uncertainty around, and risks to, the global economic outlook have increased. As the UK is an economy with a large financial sector and in which trade is significant, these risks are particularly relevant to UK financial stability.
The Bank added that cybercrime is a significant threat, and also insisted that Donald Trump’s election isn’t the only factor driving up fragmentation risks.
The latest check on financial stability also highlighted that half of households will be paying higher mortgages by 2027…
….and that firms in shadow banking sector risk triggering £17bn asset sell-off, says Bank of England.
In the retail world, shops have been offering Black Friday bargains as they try to drum up trade after a tough November.
Nationwide reports that the number of purchases by 2pm was 12% higher than on Black Friday 2023.
Amazon staff have been striking, with protests in New Delhi and in Germany.
UK mortgage approvals rose in October to the highest since August 2022.
Eurozone inflation nudged up to 2.3%.
And growth in Canada has slowed.
Black Friday is firmly up and running in the US, but these photos from New Jersey suggest there’s not a stampede to stores:
Meanwhile in Moscow, Russia’s central bank has said no emergency steps were required to prop up the rouble, which has had a sticky week.
Philipp Gabunia, a deputy chairman of the Bank of Russia, told reporters Friday at a Moscow briefing:
“The measures that have been taken are sufficient, and we are seeing signs that the situation is stabilizing.”
Today, the rouble is slightly stronger against the US dollar, at 106/$.
On Wednesday it plunged from 105/$ to 113/$.
Back in London, rumours of another piece of takeover action have been crushed.
India’s private hospital operator Narayana Health has pledged that it does not intend to make an offer for the UK’s Spire Healthcare. This means it cannot now bid for six months.
This followed media reports this morning that Narayana was considering taking a stake in Spire, whose shares jumped 8% in response.
Stocks have opened a little higher on Wall Street, as (some) traders return from their Thanksgiving break.
Art the start of a shortened session, the Dow Jones Industrial Average rose 38.0 points, or 0.08%, at the open to 44,760.05.
The S&P 500 nudged up by 0.09%, while the tech-focused Nasdaq Composite is 0.14% higher.
New data from Nationwide seems to confirm that this Black Friday is busier than last year.
They report:
By 2pm today, Nationwide customers have made 5.24 million transactions – 18 per cent higher than a typical Friday.
The number of purchases is 12 per cent higher than on Black Friday 2023 and 16 per cent higher than on the same day in 2022.
Amazon staff on strike in Germany
Back in the retail world, Amazon employees in Bad Hersfeld, Germany, have been holding strike action today.
According to the German union Verdi, around 1,200 Amazon employees from all over Germany, supported by colleagues from the USA, Sweden, the UK, and Italy, are on strike to draw attention to their working conditions and the lack of collective bargaining at Amazon.
Canada posts 0.3% growth in Q3
Over in Canada, growth has slowed in the last quarter.
Canada, the last member of the G7 to release Q3 GDP data, expanded its gross domestic product by 0.3% in July-September.
That’s a slowdown on the 0.5% growth recorded in the first two quarters of this year.
Higher household and government spending lifted growth, while slower non-farm inventory accumulation, lower business capital investment and lower exports all dragged.
On a per capita basis, GDP fell 0.4% in the third quarter, which was the sixth consecutive quarterly decline.
Data from Swedish fintech Klarna suggests there was a surge of interest in Black Friday deals in the UK early this morning, which has slightly tailed off.
Klarna, the buy-now-pay-later operator, reports that total sales were 30% higher in the first 6 hours of Black Friday, but this slowed +26% by noon.
Klarna also reports high interest in the Apple iPhone 16 Pro Max 256GB, and also for Adidas’s Samba OG shoe – which were dubbed “this year’s It-footwear”, at least until Rishi Sunak donned a pair…
Firms in shadow banking sector risk triggering £17bn asset sell-off, says Bank of England
Kalyeena Makortoff
Hedge funds, pension funds and other companies in the shadow banking sector are at risk of amplifying market shocks and triggering a £17bn asset sell-off, according to the Bank of England’s first ever stress test into the largely unregulated industry.
The landmark exercise, the first in the world by a central bank, tracked how non-bank financial institutions – often referred to as the shadow banking sector – would react in a short and sharp shock affecting financial markets.
The stress test showed that in this scenario, companies would rapidly sell off as much as £17bn worth of assets, as they scrambled to recapitalise or limit their activities, in a way that would “amplify the shock”.
WTO plans ‘constructive and creative’ approach with incoming Trump administration
Speaking of trade tensions…. the head of the World Trade Organization has said today she is eager to work with the incoming Trump administration and that she would take a “constructive and creative” approach.
Speaking at a press briefing, Ngozi Okonjo-Iweala said:
“We are looking forward to working with the new administration. I think we should come into things with a very constructive and creative approach to trying to deal with the issues that will face the world trading system.
She declined to comment specifically on tariff warnings by U.S. President-elect Donald Trump, adding:
“Until we get specifics on what is planned it is a bit premature to pronounce on these issues.”
[a point the BoE’s Andrew Bailey also made today]
Q: What kind of cyber attacks are the Bank worried about?
Governor Andrew Bailey says cyber is the risk that has risen most since the financil crisis of 2008.
It is constantly evolving and “it never goes away”, he points out.
Deputy governor Sam Woods warns that the boundary between state and non-state threat actors in the cyber space is not entirely clear, which adds to the threat.
But, he points out, the biggest disruption this year came from the Crowdstrike incident, not a cyber attack, which shows the need for wider operational resilience.
Q: Is the Bank of England concerned that France’s borrowing costs rose above Greece’s this week (as Paris’s government was rocked by a budget row)?
Governor Andrew Bailey doesn’t really comment on the situation in France, but points out that the UK showed recently how quickly bond markets can move (after the 2022 mini-budget).
That why it’s important to have assessment tools, and tools to intervene in the markets if necessary, he adds.
Incidentally, despite some breathless commentary about the French bond market in recent days, France’s 10-year borrowing costs have actually fallen this week – to 2.93%, from 3.049% last week.
That’s slightly lower than Greece, whose 10-year bonds are yielding 2.94%.
Q: What impact has the budget had on financial stability?
We are not, at the moment, seeing any sign of an increase in corporate distress, Governor Andrew Bailey replies firmly.
But he adds that the Bank will watch closely to see how the impact of the budget passes through the corporate and household sectors.
Bank: Can’t just blame Trump for rising fragmentation
Q: Have the risks of global fragmentation been increased by the election of a US president who advocates sharp increases in tariffs?
Governor Andrew Bailey says it’s very important to see what the Trump administration’s policies are, once it’s in office, rather than simply what the president-elect says.
But risks move based on what is expected to happen, and “we are seeing an increased risk of global fragmentation,” Bailey explains
It’s not right to pin that all on one event, though, he adds, saying:
We are living in a world that is, I’m afriad, more uncertain on a number of fronts with a number of very difficult events going on around the world.
BoE’s Woods: car finance won’t threaten financial stability
Sam Woods, the Bank’s deputy governor for prudential regulation, says the UK’s motor finance scandal isn’t seen as a risk to financial stability.
But, misconduct has often been a “quite a significant headwind” to the financial sector in the past, so the Bank needs to monitor it.
Woods adds that the Bank didn’t attempt to make a ‘point estimate’ of the cost of compensation for customers caught up in the car loans issue, in its latest stress tests.
Instead, it used the average of the annual cost for conduct failings in the recent past, which is £5bn/year, giving a £25bn cost over the next five years.
Is that a hint as to what the Bank thinks it could cost? Moody’s has estimated £30bn, so it’s in a similar ballpark….
Bailey: You can’t trade-off growth and financial stability
My colleague Kalyeena Makortoff asks the Bank of England about Labour’s criticism of the reforms brought in after the 2008 financial crisis.
Q: Is the Bank concerned about the messaging from the government, encouraging risk-taking in the financial markets, and have you considered that when calculating the risk that banks and shadow banking could pose to financial stability?
Governor Andrew Bailey replies that this is a very important question.
The Bank is “obviously” very supportive of growth, he insists.
But, there isn’t a trade-off between growth and financial stability, he insists. That stability is the ‘bedrock’ for the economy.
He says the Bank could only switch its bank stress tests from every year, to every two years, because the UK now has financial stability. That decision cuts costs and work for banks, but is only possible because there’s more resilience within the sector.
Bank warns half of mortgage payments will rise by 2027
The Bank of England’s new financial stability report also shows that around half of mortgages are expected to see payment increases by the third quarter of 2027.
That follows the sharp increases in interest rates – from record lows – in 2022 and 2023, before the Bank began cutting this year.
Very interesting new Bank of England chart… showing coming mortgage market shift:
Remember the Bank has the data on every single mortgage in the UK…
Half (4.4m) will see an increase in payments over next three years.
23% will see no change.
27% will see falls in payments pic.twitter.com/nTb0gkvuYl
— Faisal Islam (@faisalislam) November 29, 2024
Despite this, though, the Bank says the share of households spending a high proportion of their income on mortgage payments is expected to remain low, adding:
While many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates, the share of households who are behind in paying their mortgages is low by historical standards.
It also warns that some companies will struggle with higher borrowing costs, saying:
Firms will come under more pressure if they have a large amount of existing market-based debt which is due to be replaced with new debt, or if a high proportion of income is being spent on repayments.
The Bank of England are presenting their financial stability report at a press confence in London now.
You can watch it here:
Governor Andrew Bailey starts by reading a slightly abridged version of the statement we quoted at 10.42am, saying:
Global risks associated with geopolitical tensions, global fragmentation and pressures on soverign debt levels remain material. Uncertainty around, and risks to, the outlook have increased.
Geopolitical risk remains elevated, and as we are an open economy with a large financial sector, these risks are particularly relevant to UK financial stability.
