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Bank of England warns of Ukraine war threat to financial markets Risk managers fearful of danger to City from Ukraine crisis
(about 7 hours later)
The Bank of England has warned war between Russia and the Ukraine has emerged as one of the biggest risks to the financial system. Conflict between Russia and Ukraine has jumped up the list of feared potential shocks to the financial system, the Bank of England revealed yesterday.
Threadneedle Street’s latest biannual survey of potential threats to stability showed geopolitical concerns among the top seven risks for the first time, with 57 per cent of respondents citing worries over conflict in the region. The Bank’s latest biannual survey of potential threats to stability showed geopolitical concerns among the top seven risks for the first time. Of those surveyed, 57 per cent cited this as a key danger this year, up from 13 per cent in the second half of last year.
A possible conflict was the second most common risk mentioned by market participants behind fears of a renewed economic downturn. This was raised by 61 per cent of respondents, albeit lower than its previous survey following improving economic news. A possible conflict in the Russia/Ukraine region was the second most common risk mentioned by market participants behind fears of a renewed downturn. This latter fear was raised by 61 per cent of respondents, albeit lower than its previous survey following better economic news.
Financial firms are meanwhile increasingly worried by the possibility of a collapsing property market. Falling house prices were cited as a threat by 40 per cent of respondents, up for the third survey in a row. The Bank surveyed 72 risk managers between 7 April and 12 May, a time when street battles were taking place in separatist regions of Ukraine.
The Bank may also be concerned by signs of complacency creeping into the financial system with almost two thirds of respondents believing the chances of a crisis are either low or very low over the next year. However, concerns of a massive external shock to the British financial system have receded once again:  64 per cent now consider the probability low or very low over the next year, while just 28 per cent think this is the probability between one and three years out.
Outgoing deputy Governor Charlie Bean recently warned about low levels of volatility and potentially mispriced risks as central banks move away from emergency policy settings in an uncertain global environment. Financial firms are, meanwhile, increasingly worried by the possibility of a collapsing property market.
Further signs of rising confidence came today in figures showing the highest number of vacancies in the financial sector since 2009. Falling house prices were cited as a threat by 40 per cent of respondents. It was the third time in succession that the poll has seen an increase in the proportion of financial risk officers worried about house price falls.
With retail banks starting to hire again, there were 32,000 vacancies in the 12 months to April, according to consultancy Procorre, 10,000 higher than the year before. The Bank’s outgoing deputy Governor, Charlie Bean, recently warned about low levels of volatility and potentially mispriced risks as central banks move away from emergency policy settings in an uncertain global environment.
Nearly 90 per cent of fund managers in the City expect an improved UK economy in the next 12 months, spread-betting firm Capital Spreads revealed today, an increase of 5 per cent from three months ago. Just 1 per cent of the 200 fund managers surveyed expect the economy to weaken. The Bank’s deputy Governor for financial stability, Sir Jon Cunliffe, has described spiralling property prices as “the brightest [hazard] light” on regulators’ dashboards.
Britain’s management consultancy sector was revealed to have enjoyed its strongest growth since the start of the financial crisis. The sector grew 8 per cent in 2013, said the Management Consultancies Association. Trust in the financial system rose slightly, with 24 per cent describing themselves as completely confident or very confident in the stability of the system over the next three years and 69 per cent fairly confident.
Outside of the top seven risks, household/corporate credit risk, UK political risk and risks surrounding monetary and fiscal policy have crept up in prominence. Financial firms described geopolitical risk as the most difficult problem for them to manage.