Firms in shadow banking sector risk triggering £17bn asset sell-off, says Bank of England
Hedge funds, pension funds and other companies in the shadow banking sector are at risk of amplifying market shocks and triggering a £17bn asset sell-off, according to the Bank of England’s first ever stress test into the largely unregulated industry.
The landmark exercise, the first in the world by a central bank, tracked how non-bank financial institutions – often referred to as the shadow banking sector – would react in a short and sharp shock affecting financial markets.
The stress test showed that in this scenario, companies would rapidly sell off as much as £17bn worth of assets, as they scrambled to recapitalise or limit their activities, in a way that would “amplify the shock”.
WTO plans 'constructive and creative' approach with incoming Trump administration
Speaking of trade tensions…. the head of the World Trade Organization has said today she is eager to work with the incoming Trump administration and that she would take a “constructive and creative” approach.
Speaking at a press briefing, Ngozi Okonjo-Iweala said:
“We are looking forward to working with the new administration. I think we should come into things with a very constructive and creative approach to trying to deal with the issues that will face the world trading system.
She declined to comment specifically on tariff warnings by U.S. President-elect Donald Trump, adding:
“Until we get specifics on what is planned it is a bit premature to pronounce on these issues.”
[a point the BoE’s Andrew Bailey also made today]
Q: What kind of cyber attacks are the Bank worried about?
Governor Andrew Bailey says cyber is the risk that has risen most since the financil crisis of 2008.
It is constantly evolving and “it never goes away”, he points out.
Deputy governor Sam Woods warns that the boundary between state and non-state threat actors in the cyber space is not entirely clear, which adds to the threat.
But, he points out, the biggest disruption this year came from the Crowdstrike incident, not a cyber attack, which shows the need for wider operational resilience.
Q: Is the Bank of England concerned that France’s borrowing costs rose above Greece’s this week (as Paris’s government was rocked by a budget row)?
Governor Andrew Bailey doesn’t really comment on the situation in France, but points out that the UK showed recently how quickly bond markets can move (after the 2022 mini-budget).
That why it’s important to have assessment tools, and tools to intervene in the markets if necessary, he adds.
Incidentally, despite some breathless commentary about the French bond market in recent days, France’s 10-year borrowing costs have actually fallen this week – to 2.93%, from 3.049% last week.
That’s slightly lower than Greece, whose 10-year bonds are yielding 2.94%.
Updated
Q: What impact has the budget had on financial stability?
We are not, at the moment, seeing any sign of an increase in corporate distress, Governor Andrew Bailey replies firmly.
But he adds that the Bank will watch closely to see how the impact of the budget passes through the corporate and household sectors.
Bank: Can't just blame Trump for rising fragmentation
Q: Have the risks of global fragmentation been increased by the election of a US president who advocates sharp increases in tariffs?
Governor Andrew Bailey says it’s very important to see what the Trump administration’s policies are, once it’s in office, rather than simply what the president-elect says.
But risks move based on what is expected to happen, and “we are seeing an increased risk of global fragmentation,” Bailey explains
It’s not right to pin that all on one event, though, he adds, saying:
We are living in a world that is, I’m afriad, more uncertain on a number of fronts with a number of very difficult events going on around the world.
BoE's Woods: car finance won't threaten financial stability
Sam Woods, the Bank’s deputy governor for prudential regulation, says the UK’s motor finance scandal isn’t seen as a risk to financial stability.
But, misconduct has often been a “quite a significant headwind” to the financial sector in the past, so the Bank needs to monitor it.
Woods adds that the Bank didn’t attempt to make a ‘point estimate’ of the cost of compensation for customers caught up in the car loans issue, in its latest stress tests.
Instead, it used the average of the annual cost for conduct failings in the recent past, which is £5bn/year, giving a £25bn cost over the next five years.
Is that a hint as to what the Bank thinks it could cost? Moody’s has estimated £30bn, so it’s in a similar ballpark….
Updated
Bailey: You can't trade-off growth and financial stability
My colleague Kalyeena Makortoff asks the Bank of England about Labour’s criticism of the reforms brought in after the 2008 financial crisis.
Q: Is the Bank concerned about the messaging from the government, encouraging risk-taking in the financial markets, and have you considered that when calculating the risk that banks and shadow banking could pose to financial stability?
Governor Andrew Bailey replies that this is a very important question.
The Bank is “obviously” very supportive of growth, he insists.
But, there isn’t a trade-off between growth and financial stability, he insists. That stability is the ‘bedrock’ for the economy.
He says the Bank could only switch its bank stress tests from every year, to every two years, because the UK now has financial stability. That decision cuts costs and work for banks, but is only possible because there’s more resilience within the sector.
Bank warns half of mortgage payments will rise by 2027
The Bank of England’s new financial stability report also shows that around half of mortgages are expected to see payment increases by the third quarter of 2027.
That follows the sharp increases in interest rates – from record lows - in 2022 and 2023, before the Bank began cutting this year.
Very interesting new Bank of England chart… showing coming mortgage market shift:
— Faisal Islam (@faisalislam) November 29, 2024
Remember the Bank has the data on every single mortgage in the UK…
Half (4.4m) will see an increase in payments over next three years.
23% will see no change.
27% will see falls in payments pic.twitter.com/nTb0gkvuYl
Despite this, though, the Bank says the share of households spending a high proportion of their income on mortgage payments is expected to remain low, adding:
While many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates, the share of households who are behind in paying their mortgages is low by historical standards.
It also warns that some companies will struggle with higher borrowing costs, saying:
Firms will come under more pressure if they have a large amount of existing market-based debt which is due to be replaced with new debt, or if a high proportion of income is being spent on repayments.
The Bank of England are presenting their financial stability report at a press confence in London now.
You can watch it here:
Governor Andrew Bailey starts by reading a slightly abridged version of the statement we quoted at 10.42am, saying:
Global risks associated with geopolitical tensions, global fragmentation and pressures on soverign debt levels remain material. Uncertainty around, and risks to, the outlook have increased.
Geopolitical risk remains elevated, and as we are an open economy with a large financial sector, these risks are particularly relevant to UK financial stability.
Bank: Geopolitical tensions increase the risk of cyber-attacks
The Bank of England also warns this morning that geopolitical tensions also increase the risk of cyber-attacks.
In today’s financial stability report, the Bank says it “encourages efforts to build national and international resilience to these threats”.
It is concerned that higher geopolitical tensions also create an environment of heightened risk of cyber-attacks, which could coincide with, and amplify, other stresses.
The Bank points out that geopolitical risks and cyber-attacks remained the most frequently cited risks to the UK financial system by UK banks.
Earlier this week, UK minister Pat McFadden warned a Nato cybersecurity conference that Russia was “exceptionally aggressive and reckless in the cyber realm” and that Moscow “won’t think twice about targeting British businesses”.
Bank of England warns risks to global economic outlook have risen
Newsflash: Risks to the global economic outlook have increased since last summer, the Bank of England has warned.
In its latest Financial Stability Report, just released, the Bank warns that there are “material” global risks associated with geopolitical tensions, global fragmentation – including reduced co-operation on trade and international policy – and pressures on government debt levels.
The Bank says:
Uncertainty around, and risks to, the global economic outlook have increased. As the UK is an economy with a large financial sector and in which trade is significant, these risks are particularly relevant to UK financial stability.
The Bank singles out events in the Middle East, Russia’s continued war in Ukraine, and US-China relations as sources of material geopolitical risk.
And they cite the risks from disruption to global trade and supply chains. This could hit asset prices, including commodities, and fuel inflationary pressures, “putting upward pressure on interest rates and increasing challenges for households and businesses”.
Nationwide: Spending up 11% compared with Black Friday 2023
Building society Nationwide has reported that spending is higher this morning than on last year’s Black Friday.
By 9am this morning, Nationwide customers had made 1.66 million transactions, it reports.
That’s 11% higher than on Black Friday 2023, and 21% higher than a typical Friday [today is, though, pay day for many Brits, which could also be a factor].
Mark Nalder, director of payment strategy at Nationwide Building Society, said:
“Black Friday 2023 was the busiest shopping day on record for Nationwide customers and this year’s Black Friday is shaping up to be even busier.
“The number of purchases made by 9am is already 11 per cent higher than the same period last year. Transactions are 21 per cent higher than a typical Friday as many people use the day to kick start their Christmas shopping.
“However, it’s important everyone shops safely and uses legitimate websites to ensure their bargain doesn’t result in them losing money to a scam.”
Updated
House sales are expected to accelerate over the next four months as buyers seek to benefit from tax breaks that are due to run out in April 2025, according to the online property website Zoopla.
The number of home sales increased across the UK this year, pushing up prices by 1.5% in the year to October. Next year prices are expected to rise by 2.5% and transactions will jump by 5%, the website said.
Eurozone inflation rises to 2.3%
Inflation across the eurozone has risen back over the European Central Bank’s 2% target.
Consumer prices rose by 2.3% in the year to November, according to a flash estimate from statistics body Eurostat, up from 2% in October.
Services sector prices drove inflation up; they rose by 3.9% per year in November, while food, alcohol & tobacco prices rose by 2.8% and industrial goods prices were up 0.7%.
The deflation in energy eased – energy prices were down by 1.9% in the year, compared with a 4.6% fall in October.
Euro area #inflation expected to be 2.3% in November 2024, up from 2.0% in October. Components: services +3.9%, food, alcohol & tobacco +2.8%, other goods +0.7%, energy -1.9% - flash estimate https://t.co/xDtpCCworx pic.twitter.com/gmDf88jpk9
— EU_Eurostat (@EU_Eurostat) November 29, 2024
This may not stop the European Central Bank cutting interest rates again next month, to support the struggling eurozone economy.
FX market analyst Kyle Chapman of Ballinger Group, says:
The uptick on the headline [rate] is purely the result of energy price volatility last year, so that is irrelevant for policy. Underneath, there is a lot for the ECB to like here.
Monthly services inflation is highly negative at -0.9%, and that has fed through to a lower yearly print of 3.9% and a downside surprise on core inflation. And with the growth picture looking soft, there is still no doubt that inflation will fall to 2% on a sustainable basis next year.
In other property news, there was a jump in the number of housing transactions completed last month.
According to HMRC, there were 100,410 UK residential transactions in October 2024, 21% higher than October 2023 and 10% higher than the previous month.
Nicky Stevenson, managing director at national estate agent group Fine & Country, says:
“October saw a significant rise in buyers signing on the dotted line and committing to house moves, signalling strong momentum in the housing market despite some caution following the Autumn Budget.
“This impressive 21% annual increase and 10% month-on-month growth highlights robust consumer confidence, with many eager to push forward with their plans ahead of the typical Christmas slowdown.
“While the market has seen some price adjustments following the Budget, these changes reflect sellers’ willingness to remain competitive and attract buyers. According to Rightmove, the average asking price for a UK home dipped by 1.4% in November to £366,592 — a sharper than usual seasonal decline but a potential opportunity for buyers to secure favourable deals.
There were 100,410 residential property transactions in the UK in October 2024, which is 9.5% higher than in September (& a 2nd consecutive monthly rise in property transactions) & 21.0% higher than a year ago, according to HMRC. (1/n)#ukhousing #housing pic.twitter.com/lXk94TonuZ
— Noble Francis (@NobleFrancis) November 29, 2024
The number of UK residential property transactions in October was also 3.4% higher than in January 2020, pre-pandemic, & the lagged impact of mortgage approvals increases implies a rise in property transactions in November as well. (3/n)#ukhousing #housing pic.twitter.com/16fDm239LN
— Noble Francis (@NobleFrancis) November 29, 2024
The “fading drag from higher interest rates” appears to be continuing to support the housing market, lifting mortgage approvals last month, reports Ashley Webb, UK economist at Capital Economics:
Webb explains:
The rise in mortgage approvals for house purchase from 66,115 in September to a two-year high of 68,303 in October (consensus 64,500) likely reflects the fall in mortgage rates in recent months, from 4.9% in July to 4.4% in October.
Admittedly, the rebound in swap rates in November may prevent further declines in mortgage rates in the coming months. But our view that Bank Rate will eventually fall from 4.75% now to 3.50% suggests mortgage rates will drop to 3.9% by the end of 2026. That would support a gradual rise in mortgage approvals.
We also suspect some housing activity will be brought forward to before nil band thresholds for stamp duty expire at the end of March 2025, as announced in the Budget.
Property agent Emma Fildes of Brickweaver reports that UK mortgage approvals in October were boosted by people trying to complete a new home move before Christmas, and avoid paying more stamp duty in 2025:
Those buyers looking to be in for Christmas and the New Year, and keen to avoid paying additional stamp duty next year, boosted net mortgage approvals for house purchases, which rose to 68,300 in October, the highest level since August 2022 (72,200). Similarly, with rates… pic.twitter.com/Hv41mEo9xz
— Emma Fildes (@emmafildes) November 29, 2024
Updated
UK mortgage approvals highest since August 2022
Back in the UK, more people have been applying for mortgages following the cuts to borrowing costs this year.
Around 68,300 mortgages for house purchases were approved in October, which is the highest since August 2022 – the month before the chaotic mini-budget drove up mortgage costs – when 72,200 were agreed.
Demand picked up after UK interest rates were cut in August, and ahead of the second reduction in early November.
The Bank of England has also reported that net consumer credit borrowing by individuals slowed slightly, to £1.1bn in October, slightly down from £1.2bn in September.
Updated
Photos: Amazon protest in New Delhi
Over in New Delhi, people have been holding a protest calling on Amazon to pay higher wages, and provide better working conditions:
It's also Buy Nothing Day
Today isn’t all about shopping, as retail analyst Nick Bubb reminds us:
Spare a thought for all the hard-working delivery drivers today, coping with all the ‘Black Friday’ orders, although today is also Buy Nothing Day (a day of protest against consumerism that began in Canada in the 1990’s)...
The philosophy behind Buy Nothing Day is that it’s a 24-hour detox from consumerism, and a chance to reflect on the impact that shopping has on the environment – as it’s more sustainable to reuse and recycle than buy new.
Today is #BlackFriday, AKA #BuyNothingDay! We're encouraging #Hertfordshire to take a 24hr detox from shopping.
— WasteAware (@HertsWasteAware) November 29, 2024
We need to question what we buy- do we really need to buy it? Who made it? Where was it made? What is it made from?
Recycling is great, but reducing is better! pic.twitter.com/8cC2tlCvuh
The timing of Black Friday this year, near or on payday for many workers, may work out well for retailers.
Susannah Streeter head of money and markets at Hargreaves Lansdown, explains:
‘’We’re deep in the golden quarter for retail with Christmas sales crucial for so many stores and Black Friday spending is expected to surpass last year’s levels on both sides of the pond. However, this mega promotional event is a mixed blessing for retailers. It provokes such shopping mania in the quest for a good deal that around three quarters of people will actually put off spending in the run up to the event. During the promotional period it also means selling at a discount, with means a smaller profit margin at a time when they are being squeezed by rising staff costs. It also puts pressure on their distribution chains, which can cause problems for their reputation in they run into difficulties.
However, given that this year it’s so close to pay day, it looks likely that consumer spend in the UK will surpass last year’s totals. Consumer confidence may still be in negative territory with worries reverberating about the economy, but optimism about personal finances has increased this month, which may also translate into higher sales
There’s another flurry of takeover excitement in the City today.
UK engineer TI Fluid Systems has agreed to be taken over in a deal worth more than £1bn.
They’ve being bought by ABC Technologies Acquisitions, owned by asset manager Apollo, in a deal worth 200p per share.
Shares in TI Fluid are up 2.3%, at 193p. The company makes fluid storage, carrying and delivery systems, and thermal management products and systems, for electric cars, hybrids and also internal combustion engine vehicles.
Another loss to the London stock exchange, which has already seen takeover offers for Direct Line (rejected) and for waste management firm Renewi, and the departure of Just Eat (though that’s less of a blow….)
German retailers also need a Black Friday lift, after new data this morning showed a fall in sales last month.
German retail sales fell by 1.5% compared with the previous month, much worse than the 0.3% decrease predicted by analysts.
Food sales rose by 0.1% on the month, while non-food sales fell by 2.2% in October.
Compared to the same month in the previous year, sales were 1% higher.
Consumption boom? At least not this year….German retail sales took a nosedive in October.https://t.co/N4bhrP86ZI
— Carsten Brzeski (@carstenbrzeski) November 29, 2024
The Booksellers Assocation is urging consumers to support their local bookshops – and their high streets – today and through the year.
Meryl Halls, managing director of the Booksellers Assocation, explains:
“During this festive gifting period of immense financial pressure for many, the appeal of money-saving Black Friday deals is understandable, but the Booksellers Assocation is reminding consumers of the value of local bookshops and vibrant high streets.
Bookshops are the cultural hearts of our highstreets and essential cornerstones for our communities – and by shopping in them during the festive period, we support their presence throughout the year, and also take part in a cultural and social movement where communities who invest in their town centres and high streets thrive and flourish.
A book bought in your local bookshop enables them to support local festivals, workshops, school visits, parenting groups, libraries, charities and food banks. So we urge everyone this Friday looking to buy a book to do so from a bookshop on their local high street.”
It’s still Thursday (just) in California, but some eager shoppers have already been gathering ready for Black Friday to kick off:
australia
The Black Friday sales have already been in full swing in Australia.
The Australian Retailers Association (ARA) expects a record $6.7bn to be spent from Friday to Monday – 5.5% more than in the same period last year – based on analysis by market researcher Roy Morgan.
While major retailers – and plenty of smaller labels – have heavily promoted their products for Black Friday, some brands marketed as ethically minded have chosen to entirely avoid taking part in the sales.
Quilter: Watch out for financial scams
Financial advisor Quilter is urging shoppers to have a heightened awareness of the scams targeting their money.
They warn that Black Friday and Cyber Monday is prime time for fraudsters looking to take advantage of people during this period of high-volume spending and frenzied online activity.
Such scams are often not only disguised as the sale of goods, but also appear as opportunities to invest your money, Quilter’s information security culture manager Louise Cockburn warns.
She’s drawn up some advice for avoiding scams:
A sense of urgency – This is one of the most common tactics used at this time of year. Fraudsters design offers that appear to be fleeting, pressuring shoppers to act quickly without thoroughly evaluating the legitimacy of the deal.
Phrases such as ‘limited time offer’ or ‘only a few items left’ can be red flags. Making hasty decisions could prove costly, so you should always stop and take a moment to assess the offer critically before proceeding.Fear and anxiety – Scammers often incite fear by suggesting that failing to act immediately could result in negative consequences, such as missing out on a deal or facing account issues.
Emails from retailers are rife at this time of year, but messages claiming that your account has been compromised and urging you to click a link to verify your information are common scams. You should always verify such claims by directly contacting the retailer or service provider through official channels.Greed and excitement – Scammers know that the allure of significant discounts can cloud judgement, so you should always question the authenticity of deals that offer products at prices well below market value. It is wise to compare prices across multiple trusted sources to validate the offer, and shop only from secure, official websites.
You should always look for a padlock symbol in the address bar and verify that the URL starts with “https://”. Secure connections protect your personal and financial information from being intercepted by malicious actors.
The best Black Friday deals on the products we love....
The Filter, the Guardian’s home for product reviews and recommendations, has rounded up some of the best Black Friday deals on offer in the UK.
They’ve picked out genuine Black Friday deals – namely, discounts that undercuts the item’s long-term average price by a notable amount, rather than reversing an October price hike (a tactic popular with less scruplous retailers).
The list includes air fryers, food mixers, a handheld steamer, a coffee machine, hand-held weighs, tech kit, and clothes….
Introduction: Retailers hoping for Black Friday sales lift
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK retailers will be hoping for a surge of Black Friday sales today, after bad weather hit takings in November.
This month has been tough for Britain’s retailers, as Storm Bert brought high winds, heavy rain, flooding and transport disruption to parts of the country.
According to the Office for National Statistics, footfall on UK high streets fell 5% last week, and was 10% lower than a year ago. That will have hurt shops, who have already been hit by weak consumer confidence in the run-up to the budget in October, and afterwards.
Retail footfall and transport indicators may have been affected by the adverse weather from ‘Storm Bert’ over the weekend.
— Office for National Statistics (ONS) (@ONS) November 28, 2024
Overall retail footfall in the week to 24 Nov 2024 decreased:
· 5% compared with the previous week
· 10% compared with the equivalent week of 2023 pic.twitter.com/h33s8mievx
Black Friday, the traditional US post-Thanksgiving sales bonanza that has now gone global, should give shoppers an opportunity to bag a bargain. BUT, they should also watch out for scams from fraudsters, and be aware that some offers may not be as generous as they appear….
New data this morning from the British Retail Consortium shows that total footfall at UK stores fell by 4.5% in November, year-on-year. However, that’s partly because Black Friday came earlier last year.
Shopping centres were hit hardest, but the number of visitors to high streets and retail parks also fell with the north-east of England, Yorkshire, Wales and Scotland most affected, according to the latest data from the British Retail Consortium (BRC) and Sensormatic.
Helen Dickinson, chief executive of the British Retail Consortium, says:
“Footfall took a disappointing tumble in November, as a later-than-usual Black Friday and low consumer confidence meant customers were hesitant to hit the shops. Some northern cities also suffered particularly badly due to Storm Bert, which caused travel disruption towards the end of the month. Retailers remain hopeful that the Black Friday and Christmas sales will help to turn around the declining footfall seen through most of 2024, crucial as we enter the “golden quarter”.
Andy Sumpter, retail consultant EMEA for Sensormatic, says hopes of an early pick-up to spending before Christmas has been dashed:
“Retail store visits dipped in November as consumer confidence remains volatile, perhaps not helped by post-Budget spending jitters and shoppers withholding festive purchases, opting instead to shop around for the best prices or hold out for further discounting.
This lacklustre footfall performance will have come as a blow for many retailers, who would have been counting on getting early Christmas trading results under their belts before the start of advent.
Black Friday has been one of the biggest shopping days in the US for years, leading UK retailers to adopt it. A decade ago, there were big crowds and scuffles as stores opened at midnight to lure shoppers in with cut-price deals.
These days, it’s more of a online affair.
But Amazon faces the prospect of thousands of its workers protesting or striking from today until Monday, in a push for better workers’ rights and climate action from the US retailer.
The Make Amazon Pay campaign, is coordinating action in the US, Germany, the UK, Turkey, Canada, India, Japan, Brazil and other countries.
The agenda
7.45am GMT: French inflation rate for November
9.30am GMT: Bank of England mortgage approvals data
10am GMT: Eurozone inflation flash reading for November
10.30am GMT: Bank of England to release its Financial Stability Report
1.30pm GMT: Canadian Q3 GDP report
Updated
