The Bank of England's Financial Policy Committee (FPC) has raised its outlook on risks to UK financial stability, stating that such risks have increased in 2025. This assessment comes in the latest Financial Stability Report, published today, which underscores the need for robust risk management amid recent US corporate defaults and benign funding conditions for UK corporates.

Resilient Banking Sector Amid Elevated Global Risks

UK banks remain well-capitalised with robust earnings and improving price-to-tangible book ratios above 1, providing a buffer against shocks. The FPC has kept the countercyclical capital buffer (CCyB) rate at its neutral 2% level, reflecting low aggregate indebtedness among households and corporates despite easing credit conditions.

Corporate net debt-to-earnings stands at 134%, below pandemic and post-financial crisis peaks, though global market shocks could exacerbate vulnerabilities for highly leveraged firms. Credit spreads remain historically tight, supporting favourable funding but potentially masking risks.

Growing Focus on Private Markets and Productivity

Private markets have expanded significantly in the UK, serving as key funding for corporates, with insurers increasing exposures via funded reinsurance. While resilient so far, these markets face an upcoming Bank stress test (SWES) to probe systemic risks at their current scale.

• UK insurers commit to 100 billion in productive assets over 10 years via Solvency UK reforms, including Matching Adjustment changes.
• Mansion House Compact signatories boosted unlisted equity investments to 0.6% in 2025; new Accord targets 10% in private markets by 2030 for pension funds.
• Reforms enable ring-fenced banks to issue equity warrants to high-growth firms, with further changes under exploration.

The FPC welcomes Autumn Budget 2025 measures for SME and high-growth firm financing through public-private partnerships, emphasising their role in boosting productivity.

Household and Business Resilience

UK households and businesses continue to demonstrate resilience, supported by policy adjustments like FCA mortgage rule clarifications. Authorities are advancing technology adoption via initiatives such as the National Payments Vision and FCA's AI Lab.

This report arrives as markets digest recent economic data, including October's unexpected contraction, with the FTSE 100 closing lower on Friday amid Wall Street weakness. The FPC's twice-yearly assessment, including a press conference, aims to enhance systemic resilience while aligning with government economic policy.