Le Pen threatens the British economy, warns the Bank of England

The Bank’s Financial Policy Committee, chaired by Andrew Bailey, the Governor, singled out France in particular.

He said: “Policy uncertainty could increase existing sovereign debt pressures and interact with pressures on public sector debt levels in major economies, geopolitical risks and risks related to global fragmentation.

“These factors and their possible interaction make the economic outlook less certain and could lead to market volatility, including sovereign debt markets, as already observed in response to the surprise news of the French parliamentary elections in the summer.”

The bank said Britain’s financial system appeared well prepared to withstand any shock, but warned there were growing risks in other parts of the financial system.

This included US stock markets, where prices have reached levels last hit just before the dotcom bubble burst, and the private equity industry, which has been an increasingly important source of funding for businesses. British. Or it could be hit hard by a shock in the financial markets.

Private equity-backed companies account for 10 per cent of all UK employment – ​​more than 2 million people – and the industry has grown from $2 trillion (£1.6 trillion) in assets under management to $8 trillion over the past decade.

But the Bank said that despite this growth, the sector’s finances often appeared shaky with multiple levels of debt, making the industry and the businesses it runs vulnerable to higher borrowing costs.

The Financial Stability Report said: “The extensive use of leverage within private equity firms and their portfolio companies makes them particularly exposed to tighter financing conditions.”

There are also concerns in the housing market.

Around 3 million British households are still on low-rate mortgages of under 3 per cent, many of which were fixed before interest rates rose. Almost all of them will move to higher rates by the end of 2026, and can typically expect to pay an extra £180 a month each.

However, as the Bank of England is expected to start cutting interest rates in the coming months, 18 per cent of borrowers with variable rate loans will start to feel the benefit.

Officials expect about 1.5 million such families to have their rates cut this year, rising to almost two million by the end of 2026.

The debt interest burden is rising, but it is well below the levels seen in the crises of previous decades.

The average family can expect to pay more than 8 percent of their income on mortgage payments, down from a low of about 6 percent in the pandemic. However, this is lower than the more than 10 percent paid in the financial crisis, or the roughly 9 percent experienced in the early 1990s.