Stock Markets Could Drop 10% Bank Of England Warns

Financial markets and stocks and hares could see a “sharp downturn” if investors start to reconsider the prospects of economic recovery from the lockdown amid supply problems, rising prices and a spending squeeze, the Bank of England predicts.

The UK’s central bank's financial policy committee (FPC) warned of a “correction”, defined as a drop of at least 10% in the price of a share from its most recent peak. The bank has seen signs of increased risk-taking at investment banks – the people who get paid huge sums to play with other people’s money at the stock market casino!

Stock indexes around the world have hit record levels this year, from a crash in 2020, as investors bet on a strong economic bounce back from the pandemic.

However, worrying levels of inflation have returned to the UK, US and Germany sparking fears that growth could be stunted in the face of supply chain bottlenecks, soaring wholesale natural gas prices and skills shortages.

In the UK, millions of households and businesses are facing a long winter of discontent from a cut in benefits and state support combined with a surge in energy prices not seen since the 1970’s Arab oil crisis which sent economies across the globe into recession.

The Bank is also concerned that higher borrowing during the public health emergency has likely put more businesses at risk.

It said: "The increase in debt - though moderate in aggregate - has likely led to increases in the number and scale of more vulnerable businesses.

"As the economy recovers and government support, including restrictions on winding up orders, falls away, business insolvencies are expected to increase from historically low levels."

Around 1.7 million companies borrowed money under emergency loan schemes, like the bounce back loans, that were launched last year.

Many of them were very small companies without high debt, but desperately needed of cash to avoid immediate collapse. Source Sky News.

China’s debt and real estate bubble has not gone away, with Evergrande and Fantasia expected to default on more upcoming debt repayments.

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