BAD REGULATION, a new housing bubble and years of ultra-low interest rates could destabilise the UK’s financial system, according to a Bank of England study published yesterday.
Years of very easy monetary policy could cause a misallocation of resources, with 24 per cent of bank, insurance and investment risk staff citing low rates as a key risk to financial stability.
That is up from eight per cent six months ago and almost zero for the previous years.
Meanwhile 39 per cent fear bad regulation is a risk to stability, up five percentage points on the last six months. And 25 per cent worry about property price falls could destabilise the economy, up from 14 per cent previously.
“Responses focused on the risk that artificially low interest rates are creating distortions in asset allocation, potentially leading to over-inflated risky asset prices,” said the Bank’s report.
However the biggest risk is another economic downturn, cited by 79 per cent of risk managers.
That overtakes sovereign crises which were cited by 76 per cent.