Financial market regulators have warned that if the fall in oil prices were sustained, it could be a problem for the UK’s financial stability.
Falling prices could impact on the ability of some businesses to service their debt. Some such businesses are US oil and gas exploration firms, according to the minutes of the Bank of England’s financial policy committee’s (FPC) meetings on the 8 and 15 of December released yesterday.
US oil and gas firms account for 13 per cent of the total US high-interest bond market.
“An increase in their perceived or realised credit risk could lead to sales by investors and potentially illiquidity in the broader high-yield bond market,” the FPC said. “A sustained lower oil price also had the potential to reinforce certain geopolitical risks.” However, the FPC said no immediate threat was present.
The FPC also said the threat to the UK’s financial stability from housing had declined now the market had moderated.
However, stamp duty reforms and record low mortgage rates could provide some support to activity next year.