BoE Warns Private Credit Markets Vulnerable to Rising Interest Rates

The Bank of England has sounded the alarm on private credit markets, warning that they remain vulnerable to rising interest rates. The Financial Policy Committee (FPC) stated that risk-taking in these markets is still elevated following high-profile defaults last year.

The FPC identified broadly syndicated loans and private credit as areas where debt-servicing pressures could increase if interest rates continue to rise. While the Bank held interest rates steady at 3.75 per cent, the Federal Reserve hiked rates by 25 basis points in September.

The warning comes as the Bank conducts a probe into the resilience of private markets through its system-wide exploratory scenario (SWES) exercise. This scenario models a global shock that sends equity markets down 35 per cent and pushes inflation to seven per cent, a scenario described by industry figures as 'exceptionally severe'.