The latest Financial Stability Review from the Bank of England predicts continued stability in the U...
The latest Financial Stability Review from the Bank of England predicts continued stability in the UK financial system, although there are risks that must be managed if the country is to avoid banking or other crises.
In fact, the bank argues, the UK has remained remarkably stable considering the hits to the international financial system in the past five years from the Asian flu of 1997-8, the US savings banks crisis, trouble in Brazil, the dot.com bubble, 11 September, and the bankruptcies of Argentina and Enron.
Signs are that the UK economy will face more tests in coming months as figures indicate company bankruptcies may increase.
The bank says official DTI statistics do not show the full picture, but its own "contacts" within the industry and other reported figures indicate that terms and conditions for extending loans have been tightened up and that bad debts increased during the first half of this year.
"These disagregated statistics suggest that there is a small subset of companies that face rather higher risks of failure than may be apparent from the aggregate indicators," the bank writes.
Manufacturing, technology and telecoms companies remain most at risk of defaulting on debt, the bank says, although there is also growing concern about the pace of growth in loans made to commercial property companies.
An increasing proportion of money borrowed by these companies is being used for investment reasons rather than developing new property.
The bank argues against the idea that companies will be pushed over the edge by their new requirements to report pensions liabilities in line with FRS17, as deficits remain small as a proportion of overall pension fund assets.
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