Economic Buzz: UK financial system has been resilient in response to increases in sovereign bond yields, says Bank of England

Bank of England noted in a latest update that the financial system has so far been resilient in response to increases in sovereign bond yields, and market adjustments have been mostly gradual. Although hedge fund leverage in the gilt market has been stable, it remains elevated, and deeper interconnections between vulnerabilities means the risk of a sharp adjustment persists. This underlines the importance of the Bank?s work on gilt repo market resilience. Domestically, the households and corporates remain resilient and the UK banking system remains appropriately capitalised with high levels of liquidity. Past stress test results have demonstrated that the UK banking system would be resilient to a scenario with higher energy prices and interest rates and in which macroeconomic conditions turn out materially worse than currently expected.

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