BoE FPC Minutes: Risks Seen Rising But Nothing Concrete Enough To Hit Spreads

BoE FPC minutes note the usual risk factors to the system with a name-check for office and retail CRE alongside a heads-up of further work on private capital and UK bank profitability to come with the 27-Jun-24 report. Little here to move spreads, in our view.

• The committee noted asset valuations seen as continuing to rise with risk premia hitting historic lows in a “challenging risk environment”, whilst implicitly noting US investors are betting heavily on US rate cuts and risks from growth, rate path or geopolitics leading to a “sharp correction” have risen since 4Q23.
• Private equity, credit and leveraged loans are seen as vulnerable to any change in investor sentiment and a “further assessment” will be published with the Jun-24 report.
• UK bank valuations make it in there again with further analysis of future profitability, as it pertains to price-book values, will also be in the report. To our minds, the issue is less the banks ability to generate future profitability but more that nearly two decades of disappointment from investors have had an effect.
• Counter-cyclical buffer is being left unchanged at 2%.
• Finally, uneven impacts of rising rates on corporates is noted with specific mention of commercial real estate (CRE) especially office and retail space facing structural, as well as refinancing, headwinds.