# Britain’s financial system under stress amid market turmoil -analysts
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-10-17
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: UK Banks and Financial Firms Face Deepening Stress Amid
Meta Description: Ratings agency Moody's warns of turmoil in government bond markets jeopardizing financial stability, putting pressure on a broad range of financial firms.
URL: https://financedigest.com/britains-financial-system-under-stress-amid-market-turmoil-analystshtml

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By Iain Withers and Lawrence White

LONDON (Reuters) -Britain’s banks and financial firms face deepening stress from rising funding costs and worsening household finances, analysts warned on Monday, as the government battles to stem a dramatic loss of confidence among investors.

Ratings agency Moody’s said turmoil in government bond markets “jeapardizes financial stability”, putting pressure on a broad range of financial firms from pension funds to banks and other lenders.

Government bond yields spiked last month after then-finance minister Kwasi Kwarteng announced billions of pounds of unfunded tax cuts, sending mortgage prices [soaring as banks raced to pass on their own increased funding costs](https://www.financedigest.com/amazon-other-retailers-revamp-free-shipping-as-costs-soar.html "Amazon, other retailers revamp ‘free’ shipping as costs soar").

Falling asset prices risk creating a “negative feedback loop” of fire sales, Moody’s warned, saying measures taken by the central [bank to support](https://www.financedigest.com/britains-digital-banks-need-support-amid-banking-turmoil-trade-body.html "Britain’s digital banks need support amid banking turmoil – trade body") the market had helped prevent this so far.

Britain’s mortgage [market also faces](https://www.financedigest.com/spains-santander-reaffirms-targets-in-face-of-recent-market-turmoil.html "Spain’s Santander reaffirms targets in face of recent market turmoil") significant stress as households struggle to meet the surging cost of home loans, investment bank Morgan Stanley said.

Between 30-40% of households on lower incomes will face difficulties [paying their mortgages](https://www.financedigest.com/7-questions-to-ask-before-paying-off-your-mortgage-early.html "7 Questions to Ask Before Paying Off Your Mortgage Early"), with average rates on some fixed-rate products now topping 6%, the bank estimates.

New [finance minister Jeremy Hunt said on Monday the government would raise 32 billion pounds a year](https://www.financedigest.com/2019-year-must-re-build-public-trust-finance.html "2019 is the year we must re-build public trust in finance") in extra revenue, as he sought to restore investor confidence in the country’s fiscal credibility.

Despite some calm being restored to markets, the Morgan Stanley note said ahead of Hunt’s announcement that it did not expect mortgage rates to come down [quickly and that volumes will flatline in 2023 instead of growing](https://www.financedigest.com/4-strategies-for-quickly-growing-your-startup.html "4 Strategies for Quickly Growing Your Startup") 2.5% as it had previously forecast.

Not all bank analysts have a bearish view. British banks are oversold, analysts at Berenberg said in their own note on Monday, adding that a boost to [profits from rate rises would likely offset a plausible increase](https://www.financedigest.com/4-tips-for-landlords-to-increase-rental-property-profits.html "4 Tips for Landlords to Increase Rental Property Profits") in loan losses.

Britain’s [banks are due to report](https://www.financedigest.com/bank-funding-for-renewables-stagnates-vs-oil-and-gas-report.html "Bank funding for renewables stagnates vs oil and gas – report") their third-quarter earnings next week.

[Investors are already questioning whether banks’ risk](https://www.financedigest.com/institutional-investors-back-shell-board-lawsuit-over-climate-risk.html "Institutional investors back Shell board lawsuit over climate risk") models are up to the task of identifying which home loans may turn sour when unemployment is low but household budgets are nonetheless being squeezed, Reuters reported last week.

The country’s [bank shares](https://www.financedigest.com/bank-shares-rise-after-credit-suisse-rescue-eases-crisis.html "Bank shares rise after Credit Suisse rescue eases crisis") have swung wildly since the Sept. 23 [fiscal announcement](https://www.financedigest.com/workday-announces-fiscal-2018-third-quarter-financial-results.html "Workday announces fiscal 2018 third quarter financial results"), with Lloyds down 10%, against a 1.7% fall in the benchmark FTSE 100 index.

(Reporting by Iain Withers and Lawrence White, Editing by Bernadette Baum)


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