On 7 July 2026, the Bank of England (BoE) published the latest Financial Stability Report, which sets out the Financial Policy Committee’s (FPC) view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it.

Key points highlighted in the report include:

  • Overall summary: The FPC noted that vulnerabilities in risky asset valuations, sovereign debt and credit markets, including private credit, persist and in some cases have intensified since the December 2025 Financial Stability Report. In particular, leverage in equity markets has increased significantly. Geopolitical developments have materially affected the global risk environment, but the UK financial system has remained resilient and continued to support the real economy. The FPC also highlighted that rapid advances in frontier AI are increasing financial stability risks, particularly in relation to cyber security and operational resilience.
  • The macroeconomic environment: Although the US–Iran Memorandum of Understanding has eased near-term pressures, with energy prices and bond yields falling from earlier peaks, uncertainty and market volatility persist. The FPC warned that existing financial system vulnerabilities could be exacerbated by further geopolitical developments. Increased leverage in equity markets has heightened the risk that multiple vulnerabilities could crystallise simultaneously, amplifying threats to financial stability.
  • Vulnerabilities: The FPC highlighted growing risks across equity, credit and sovereign debt markets, with AI playing an increasingly important role. Equity valuations, particularly for AI-related companies, have become more stretched, market concentration has increased, and hedge fund leverage has risen significantly, amplifying potential market shocks. In addition, AI investment is driving unprecedented demand for debt financing, while uncertainty remains over future profits and productivity gains. Risky credit and private credit markets remain vulnerable due to leverage, liquidity and valuation concerns. Sovereign debt markets also face heightened risks from rising debt levels and leveraged trading strategies. The FPC warned that these vulnerabilities could crystallise simultaneously, threatening financial stability.
  • UK household, corporate and banking system resilience: The FPC concluded that UK households and businesses remain broadly resilient despite a more challenging economic environment. Overall debt levels and vulnerability measures remain low by historical standards, although higher energy costs and borrowing rates are expected to increase debt-servicing pressures, particularly for low-income households and smaller, more leveraged firms reliant on private credit or leveraged loans. The UK banking system remains well capitalised and liquid, with stress tests showing it can withstand severe shocks while continuing to lend. The FPC highlighted the importance of managing banks’ links with non-bank financial institutions and maintained the countercyclical capital buffer at 2% to support resilience and lending capacity.
  • Developments in frontier AI: Rapid advances in frontier AI since the December FSR have significantly increased financial stability risks linked to cyber security and operational resilience as the FPC considers that more capable AI systems can identify and exploit vulnerabilities at greater scale, increasing the sophistication of cyber-attacks on financial firms and market infrastructure. While AI may strengthen cyber defences, it also creates new operational challenges as firms must respond more quickly to emerging risks. The FPC stressed the importance of robust cyber and operational resilience frameworks, enhanced coordination between authorities and technology providers, and effective implementation of the UK’s Critical Third-Party regime to maintain financial system resilience.
  • Bank capital review: The FPC and PRA are proposing reforms to modernise the UK bank capital framework, with the intention of making it simpler, more proportionate and better aligned with current risks while maintaining financial system resilience. The changes aim to improve banks’ ability to support lending and core market functioning during periods of stress by making capital buffers more usable and releasable. Longer term, the authorities support moving towards a single releasable capital buffer. Proposed leverage ratio reforms include removing the countercyclical leverage buffer, aligning requirements more closely with international standards and increasing the proportion of leverage buffers that can be released during stress events.

The FPC published a record of its meeting on 26 June 2025 alongside the report.