Correct as at 3 November 2026.
The Bank of England’s Financial Policy Committee (FPC) said the likelihood of linked vulnerabilities crystallising has risen since its previous meeting, and kept bank capital buffers unchanged, which bears on lending costs.
The committee, which identifies risks to the UK financial system and sets policy to reduce them, met on 25 September. Its next meeting is on 19 November 2026.
How much has the risk of a shock risen?
The likelihood has risen since the previous meeting, the FPC said, with sovereign bond yields across a number of advanced economies at levels not seen since 2008.
So far the system has coped. The committee said it had been resilient to higher yields and that “market adjustments have been mostly gradual”.
The gilt market is the exception it singled out. Hedge fund leverage there, meaning borrowing to amplify positions, was stable but elevated, and the risk of a sharp adjustment remained.
The FPC said that underlined the importance of the Bank’s work on gilt repo (short-term borrowing secured against gilts) resilience.
At the June meeting, the FPC noted a substantial increase in leverage in equity markets. The December 2025 Financial Stability Report had already said risks to financial stability increased during 2025.
What did the FPC decide on bank capital?
It kept the UK countercyclical capital buffer (CCyB), an extra capital requirement on lenders, at 2%.
The committee judged that the UK banking system remained appropriately capitalised with high levels of liquidity. UK banks’ underlying return on tangible equity rose to 17.1% in the second quarter, and impairments stayed low.
The longer-run yardstick is lower than it was. In December 2025 the FPC cut its benchmark for system-wide Tier 1 capital requirements to around 13% of risk-weighted assets from around 14%.
The downside of holding more capital is cost. The FPC has said higher capital affects borrowing costs, which it weighs against the benefit of fewer and less costly crises.
The leverage ratio is next. In June the FPC set out an intention to consult on reforms to make the framework more proportionate and better targeted, and the Bank expects to consult in early 2027.
The proposals could lift leverage capacity at UK banks with significant market activity by around 5% from current levels. The FPC judged that if all of that capacity were used, the increase in bank leverage would be meaningful.
The FPC also assessed that the reforms could raise hedge fund leverage through equity prime brokerage, heightening the risk of sharp equity corrections and of losses to prime brokers.
Which other risks did the FPC flag?
It flagged frontier AI, private credit and climate.
On AI, test-environment incidents in the third quarter showed that increasingly autonomous models could take unexpected actions under weakened safeguards. The FPC said this reinforced its July view that frontier AI could increase cyber and operational risks.
Financing is also growing. Global AI-related debt issuance totalled around $450bn, more than double the total for all of 2025.
Private markets funds held around $16trn of assets globally. The FPC said risky credit markets, including parts of private credit, remained vulnerable to a tightening in financing conditions.
It added that redemptions at foreign private credit funds with a retail and wealth investor base remained elevated. Resilience of the wider non-bank sector was judged broadly unchanged.
On climate, the committee judged the most material channels to be long-run effects on sovereign debt pressures globally and the provision of flood insurance to UK households and businesses.
What does it mean for borrowers?
Borrowing costs have edged up, though the FPC judged household and corporate vulnerabilities broadly unchanged since July.
The effective rate on new bank loans to UK private non-financial companies rose by 20 bps to 5.62% in July. For small and medium-sized enterprises it rose to 6.61% from 6.36%.
As an illustration using only those figures, interest on £1m of new SME lending would be £66,100 a year at 6.61% against £63,600 at 6.36%, a difference of £2,500.
Average quoted rates on fixed-rate mortgages had risen by around 40 to 60 bps, on average daily rates data.
If you are a business or household with borrowing due to be repriced, these are averages across new lending, so individual terms can differ. The committee’s figures are not a forecast of any lender’s rates.
The FPC’s next meeting is on 19 November 2026, and its record is due on 26 November 2026.
