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Bank of England warns that some global asset valuations appear stretched

by Jessica Weisman-Pitts
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2023 10 10T093309Z 1 LYNXMPEJ990AX RTROPTP 4 BRITAIN BOE INSURANCE

Bank of England warns that some global asset valuations appear stretched

By David Milliken and Huw Jones

LONDON (Reuters) -The Bank of England said on Tuesday that valuations for some financial assets may be too high, particularly for U.S. tech stocks and dollar-denominated corporate bonds.

“The overall risk environment continues to be challenging and near-term growth prospects remain subdued,” the BoE’s Financial Policy Committee (FPC) said after a quarterly meeting.

“Given the impact of higher interest rates, and uncertainties associated with inflation and growth, some risky asset valuations appear to be stretched,” it added.

The FPC judged Britain’s banks and wider financial system remained resilient, and it held banks’ counter-cyclical capital buffer (CCyB) – a risk management tool – unchanged at 2%.

“The FPC will continue to monitor developments closely and stands ready to vary the UK CCyB rate, in either direction, in line with the evolution of economic and financial conditions,” it said.

Some FPC members argued for an increase in the rate, to boost banks’ resilience at a time when loan losses were low, and the case for cutting it was also considered, the BoE said.

After last month’s meeting of its Monetary Policy Committee (MPC), the BoE kept interest rates on hold for the first time since it began its tightening cycle in December 2021, leaving its main Bank Rate at 5.25%.

Earlier on Tuesday, the International Monetary Fund downgraded its forecasts for Britain for next year, predicting growth of just 0.6% in 2024, the weakest of any major advanced economy.

The BoE said it did not expect the debt-servicing burden on British households or businesses to return to higher levels seen on the eve of the global financial crisis in 2007, even with much of the impact of its run of rate rises still to be felt.

However, it was keeping a close eye on the property market in Hong Kong and mainland China, to which some British lenders are exposed.

Higher mortgage rates were also leading to landlords passing on the costs to tenants, though there had not been significant signs of landlords selling up so far.

(Reporting by David Milliken and Huw JonesEditing by William Schomberg)