Bank of England warns of increased risk-taking and reliance on cloud computing– business live

Graeme Wearden

from on 2021-07-13 17:16 (#5M4C1)

Rolling coverage of the latest economic and financial news

Latest: US inflation jumps to 5.4%
Core inflation highest since 1991

Earlier:

6.16pm BST

And finally, here's my colleague Ed Helmore on today's US inflation data:

US inflation hit a 13-year high last month, driven by a rise in the cost of used cars.

6.04pm BST

European stock markets have finished the day where they started it.

The FTSE 100 finished virtually unchanged at 7125 points, with airline group IAG (-2.2%), hotel operator Whitbread (-1.9%), falling on concerns that Covid-19 will surge after restrictions in England are lifted

On the FTSE 250 Cineworld has taken another battering as Britons get to grips with the mask conundrum. Big titles might now be making big money at the box office but are consumers ready to sit side-by-side with movie goers when restrictions are eased?

5.36pm BST

PepsiCo posted strong results today, with quarterly revenue up more than 20% from a year earlier as restaurant demand for its drinks returned, helping it beat earnings forecasts.

The company also raised its outlook for its full-year adjusted earnings per share growth.

A lot of the things we did through the pandemic, continuing to invest in the business, are now paying dividends now that mobility has increased and consumers are getting out more,"

"It's a reflection of clearly the category is better, but also the business is performing really, really well," says @PepsiCo CFO @hughjohnston on Q2 results. "We are across the board performing well versus competition." pic.twitter.com/ITqEVHoVa4

"The fact we've invested so much in our brands and so much in our ability to service customers is enabling us to take pricing up so we can offset the impacts of inflation," says @PepsiCo CFO @hughjohnston $PEP. pic.twitter.com/H63P9WXVZo

"Clearly ecommerce is doing well, smaller customers continue to do well--we want to make sure we've got an organization that is ready to deal with where consumers are ready to go," says @PepsiCo @hughjohnston $PEP. "One of the big things we have to do--is invest in digital." pic.twitter.com/HbA0mNSNPn

5.08pm BST

Stocks have now nudged higher in New York, helping the broad S&P 500 index and the tech-focused Nasdaq to reach new record highs.

Mega tech stocks are among the risers, as investors drive these growth stocks to fresh highs.

The #Nasdaq index reversed early declines to hit a record high on Tuesday, helped by a rise in growth-linked megacap #stocks and as earnings season kicked off on a positive note, while a solid rise in consumer #prices in June weighed on sentiment. pic.twitter.com/rNrPeC5Nlb

Nasdaq higher even as Dow and S&P 500 slip. New record for Nasdaq and $QQQ. All-time highs today too for $AAPL $MSFT $AMZN $GOOGL $PEP $SBUX $V $TGT $TMUS $ADBE and many more.

4.47pm BST

The White House Council of Economic Advisers have tweeted about the inflation data, showing how rising auto costs were a key factor:

Inflation as measured by CPI increased at a 5.4% rate year-over-year last month and 0.9% month-over-month. Core inflation-without food/energy-rose 4.5% year-over-year and 0.9% month-over-month. A large part of the increase is due to cars and pandemic-affected services. 1/ pic.twitter.com/REK1IDKRqn

Cars once again accounted for a large share of the increase. Used cars, new cars, auto parts, and car rentals together made up about 60 percent of core month-over-month inflation 2/ pic.twitter.com/SeYSQZXRjy

Prices of pandemic-affected services rose again this month and contributed 11 basis points to the core inflation increase in June. 3/ pic.twitter.com/WboFFbUyju

Without cars and pandemic-affected services, core inflation rose 0.22 percent month-over-month, relative to 0.28 percent in May and 0.31 percent in April 4/ pic.twitter.com/ZQsigWt5OL

The year-over-year numbers were impacted by base effects from last year, although the impact of base effects is starting to move out of the data. Starting in July, year-over-year changes in CPI will be calculated off of a price level that is above the pre-pandemic level. 5/

Controlling for base effects by smoothing across the 16 months since February 2020, the rate of CPI inflation was 3.5%. 6/ pic.twitter.com/GkdskKFyjP

In core inflation, controlling for base effects the rate of annualized CPI inflation was 3.1% 7/ pic.twitter.com/Atb54tNCXx

We know that the recovery from the pandemic will not be linear. The Council of Economic Advisers will continue to monitor the data as they come in. /end

4.42pm BST

Hotel Chocolat has reported a surge in subscribers as chocoholics have signed up to regular sweet treats during the pandemic.

4.40pm BST

Back in Europe, France's antitrust watchdog has fined Google 500m (428m) for failing to comply with the regulator's orders on how to conduct talks with the country's news publishers in a row over copyright.

The fine comes amid international pressure on online platforms such as Google and Facebook to share more revenue with news outlets.

2.58pm BST

The US stock market has made a subdued start to trading:

JUST IN: Boeing cuts production of the 787 Dreamliner after a new flaw was found. @Lebeaucarnews has the details. https://t.co/lPz40zRR57 pic.twitter.com/CLookhTsfT

2.50pm BST

More reaction....

When people say inflation is "transitory," they really mean supply disruptions drive inflation. But those disruptions keep intensifying & spreading globally, so they're definitely NOT transitory! They're going to last well into 2022 & start mingling with demand-pull inflation... pic.twitter.com/7PGluNkpTW

Used car prices continues to drive US core inflation higher. 10.5% m/m in June.

Largest monthly increase in headline since June 2008. pic.twitter.com/DzNIH4zSXk

Inflation: 5.4%

10 yr bond yields: 1.4%

Bitcoin: 50% off its highs

Gold: flat over the last year

Inflation hedging: not as easy as it sounds

2.49pm BST

The inflation scare is far from over, says Andrew Hunter of Capital Economics.

The 0.9% m/m surge in both headline and core consumer prices in June was much stronger than we expected and illustrates that temporary shortages and supply bottlenecks stemming from the pandemic are still putting significant upward pressure on prices in some sectors.

But the bigger concern is that inflationary pressures are also now clearly building in more cyclically-sensitive sectors, which could prove longer lasting.

2.44pm BST

Today's US inflation reading came in higher than economists expected for the fourth consecutive month and raises the prospect that inflationary concerns are set to linger, says Ambrose Crofton, Global Market Strategist at J.P. Morgan Asset Management:

In recent months, price pressures have been most concentrated in goods products where there has been the perfect storm of huge demand - thanks to the strength of consumers' finances - combined with bottlenecks in supply chains raising businesses' input costs. But now with the reopening in full swing, the price pressures on the services side of the economy, where many businesses are still struggling to hire workers to meet demand, are also rising.

The big question for markets and the Federal Reserve is the extent to which inflationary pressures persist. Many of the price increases in areas most affected by the reopening are likely to temper in the coming months - used cars, hotels and airfares, for example. But some components of today's report raise the prospect that underlying inflationary pressures are set to linger longer than most expected. The shelter component that historically moves in long cycles and accounts for a third of the inflation basket rose to an annual rate of 2.6% in June.

2.27pm BST

Used cars & truck prices... +10.5% M/M, +45.2% Y/Y (!!!!!!) https://t.co/u2X2I0lHrC

Core inflation 4.5%
Core inflation ex-used cars 2.7%
Deep breath everyone

2.26pm BST

Heather Long of Washington Post has gathered the key factors pushing up US inflation, including car rental, gas prices and airfares:

Here are the items really driving up inflation:

Car rental 87.7% (y/y change)
Used cars 45.2%
Gas 45.1%
Laundry machines 29.4%
Airfare 24.6%
Moving 17.3%
Hotels 16.9%
Furniture 8.6%
Bacon 8.4%
TVs 7.6%
Fruit 7.3%
Shoes 6.5%
Fresh fish 6.4%
New cars 5.3%
Milk 5.6%
Rent (OER) 2.3%

Bottom line on inflation: June's 5.4% rise was the highest in 13 years.

A third of this was from used car price surge, which is likely to fade. Airfare, hotels, etc. also seeing price spikes that will likely fade.

BUT rising rents could be a problemhttps://t.co/iXMZ0BMxyh

2.14pm BST

Here's Greg Daco of Oxford Economics on the inflation report:

Headline CPI #inflation +0.4pt to 5.4% y/y in June: highest since Aug '08

Core #CPI inflation +0.7ppt to 4.5%: highest since Nov '91

Warmer than expected, but we knew risks were tilted to upside
Used car prices m/m: largest since 1953
This represents peak inflation pic.twitter.com/Z0CKNYVZxd

2.13pm BST

The 10.5% jump in US used cars and trucks prices in June is the largest monthly increase reported, since the index was first published in January 1953.

On an annual basis, used cars and truck prices have soared by over 45%, again the highest recorded.

Goldilocks would not like those US #inflation figures. Consumer prices are HOT! CPI up 5.4% in the past 12 months and 0.9% on the previous month. Used car sales has provided a big boost.

1.59pm BST

Wall Street futures have turned lower, as traders worry that rising inflation will put more pressure on the Fed to raise interest rates sooner.

Futures not a fan of this CPI surprise. pic.twitter.com/aThxHNTLgg

1.51pm BST

US inflation has accelerated to a new 13-year high, as consumers are hit by rising price pressures as the economy recovers from the pandemic.

The annual consumer prices index rose by 5.4% in the 12 months to June, up from 5% in the year to May. That's the largest increase since August 2008 (when it also rose 5.4%), and higher than economists and investors had expected.

BREAKING! US core #inflation rose to 4.5% in June, higher than expected and the highest level since 1991. Headline #CPI also higher than expected at 5.4%! pic.twitter.com/yIiBuYSZ53

US CPI up 5.4% yoy, Core CPI up 4.5%. Both above expectations.

BREAKING:

*U.S. CONSUMER PRICE INFLATION JUMPS +5.4% Y/Y IN JUNE; EST. +4.9%

*U.S. CORE CPI JUMPS +4.5% Y/Y IN JUNE; EST. +4.0% pic.twitter.com/X4N7RdZoGo

A few categories that have never seen larger month-on-month price increases:

--New trucks
--Used cars
--Rugs
--Food from vending machines and mobile vendors
--Private lessonshttps://t.co/u7QBlnkxTT

1.21pm BST

Confidence among small US businesses has risen, despite worries about inflation and labor shortages.

The National Federation of Independent Businesses' optimism index jumped 2.9 points last month to 102.5 points. More companies expected the economy to improve, while the proportion planning to create new jobs rose to a record.

Small businesses' optimism is rising as the economy opens up, yet a record number of employers continue to report that there are few or no qualified applicants for open positions,

Owners are also having a hard time keeping their inventory stocks up with strong sales and supply chain problems."

NFIB reported that #confidence among small #business improved during June, with the Small Business Optimism Index rising 2.9 points to 102.5. Seven of the 10 index components improved and three declined. Owners continue to worry about a labor shortage and inflation. pic.twitter.com/NCkK3kHT5f

NFIB Small Business -- Single Most Important Problem:

(Labor quality and inflation are surging, while labor costs are trending slightly lower) pic.twitter.com/KKN0cEc4lm

Per the latest NFIB Small Business Optimism Survey, 47% of respondents are currently planning to raise prices in US. That's the highest such number since 1981.@pierslinney @LisaAbeyta @JJ_McCullough @Astro_Jonny https://t.co/1tjBWfKcVy pic.twitter.com/n7P8syzy4H

1.00pm BST

Goldman Sachs has beaten forecasts, with revenues rising and profits ahead of expectations.

Goldman Sachs Group Inc on Tuesday blew past analysts' estimates for second-quarter profit as Wall Street's biggest investment bank capitalized on record global dealmaking activity.

Global mergers and acquisitions activity broke records for the second consecutive quarter this year despite slowing activity among blank-check firms as companies borrowed cheaply and splurged their cash reserves on deals to reposition them for the post-COVID world.

BREAKING:

*GOLDMAN SACHS 2Q EPS: $15.02, EST. $9.06
*GOLDMAN SACHS 2Q REVENUE: $15.39B, EST. $12.04B
*GOLDMAN SACHS 2Q TRADING REV $4.90B, EST. $5.02B
*GOLDMAN SACHS 2Q FICC SALES & TRADING REV $2.32B, EST. $2.49B$GS pic.twitter.com/3UZccolHGy

12.59pm BST

JP Morgan also reported a slowdown in trading activity and a lack of demand for loans from consumers.

Loans at JPMorgan's consumer and community banking division fell 3%, which CEO Jamie Dimon attributes to higher prepayments in mortgages and lower credit card balances.

12.35pm BST

JP Morgan has got the bank reporting season up and running, with a surge in profits in the last quarter.

$JPM (Essential 40 holding)

Adjusted earnings per share (EPS): $3.78 vs. $3.13 estimate
Revenue: $31.4 billion vs. $30.07 billion estimate

JP Morgan earned $11.9 billion in net income, $7.3 billion from a year ago pic.twitter.com/gHstfHNtBV

This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits. Our earnings, not including the reserve release, were $9.6 billion.

Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve. In particular, net charge-offs, down 53%, were better than expected, reflecting the increasingly healthy condition of our customers and clients."

JPMorgan's second-quarter profit soared, as the bank continued to free up money it set aside last year to prepare for the Covid-19 recession https://t.co/GNfg4xTlLr

12.07pm BST

Investors are much less bullish' about the prospects for growth, profits and inflation, according to the latest fund manager survey from Bank of America.

BofA's monthly poll of clients found that the cyclical boom" has peaked, with growth expectations weaker in July.

According to Bank of America's fund manager survey, real estate investment trusts, tech and utilities saw investor inflows this month

More folks seem to be positioning for a temporary burst of inflation, rather than a long term structural shift. pic.twitter.com/z1u9Y3d2no

11.41am BST

Metropolitan police detectives investigating international money laundering have seized nearly 180m of bitcoin.

While cash still remains king in the criminal word, as digital platforms develop we're increasingly seeing organised criminals using cryptocurrency to launder their dirty money."

11.30am BST

China's exports and imports both rose strongly in June, helping ease concerns over global growth that have knocked financial markets in recent days, my colleague Julia Kollewe explains.

Exports grew by 32% year on year in June to $281bn (203bn), according to figures from China's General Administration of Customs. This is up from the 28% growth recorded in May, and better than analysts had expected. It marks 12 months of continuous export growth.

11.09am BST

Here's Reuters' David Milliken on the Bank of England's cloud computing concerns:

The BoE isn't inherently opposed to banks using the cloud for their IT: day-to-day it can be more reliable than banks running their own servers. But it's a concentration of risk, and the concentrated market makes it hard for banks to shop around for more transparent suppliers.

"Secretive" cloud providers risk making UK's financial system vulnerable to a handful of points of failure, the Bank of England warns https://t.co/pWgBsyW9Kr

11.00am BST

The failure of the Opec group and its allies to agree a rise in oil production risks damaging the global recovery from the pandemic, and could spark a price war, the world's energy watchdog says.

Oil prices reacted sharply to the OPEC+ impasse last week, eyeing the prospect of a deepening supply deficit if a deal cannot be reached.

At the same time, the possibility of a market share battle, even if remote, is hanging over markets, as is the potential for high fuel prices to stoke inflation and damage a fragile economic recovery.

If OPEC and its allies can't reach an agreement on oil production, a deepening supply deficit may loom, the International Energy Agency says https://t.co/eYNaD9ZDsf

While prices at these levels could increase the pace of electrification of the transport sector and help accelerate energy transitions, they could also put a drag on the economic recovery, particularly in emerging and developing countries.

10.44am BST

Helen Bradshaw, portfolio manager at Quilter Investors, suggests banks will be cautious about handing dividends to shareholders while the pandemic continues, after restrictions have been lifted today.

The banking sector bore the brunt of the dividend collapse since the start of the pandemic as the regulator ordered banks to freeze dividends as an insurance policy against spiralling loan losses.

In December, the PRA gave the banks the option of resuming dividends, but with some very large caveats or guardrails' in that dividends could not exceed either 20 basis points of risk-weighted assets, or 25% of cumulative eight-quarter profits for 2019 and 2020.

As ordinary people and businesses across the country have suffered the worst economic effects of Covid-19, banks have continued to rake in profits from government-backed loan schemes.

British banks have proved time and time again that they can't be trusted to make sensible decisions to support the public interest, and will instead prioritise short-term returns to shareholders over communities and the real economy.

10.36am BST

Experts have been ploughing through today's Financial Stability report from the Bank of England.

Karim Haji, EMA and UK Head of Financial Services, KPMG, says the BoE seems cautiously optimistic about the health of UK banks, while worried about risk taking in the markets.

The Bank is cautiously optimistic, relaxing rules on dividend payments whilst also giving the green light for banks to use their capital buffers to the fullest extent if that's what it takes to keep supporting UK businesses. The decision to hold the countercyclical buffer ratio at 0% until 2021 - which with the implementation lag means the end of 2022 - will help ensure this remains a reality.

After more than a decade of being told to build buffers, the instruction to use them has seemed a drastic shift but in reality few banks have needed to make a dent in their reserves. The scale of banks' capital supports the confidence demonstrated in today's report, with UK banks remaining resilient to more drastic hits to the economy than those forecast. That said, it seems notable that there is no warning of potential short term inflation in today's report, this could be overly optimistic given the many compounding pressures that remain in light of the pandemic and Brexit.

10.35am BST

The Financial Stability Report also flags up that the UK housing market was its hottest in a decade in the last six months, saying:

House price growth and housing market activity during 2021 H1 were at their highest levels in over a decade, reflecting a mix of temporary policy support and structural factors.

Recent high levels of activity are likely to reflect in part a temporary boost provided by the stamp duty holiday, as shown by the peak in housing transactions completing in March 2021 ahead of its original deadline. They may also partially reflect structural factors such as households prioritising additional space to accommodate flexible working arrangements and increased savings accumulated during the pandemic, as well as the continued low interest rate environment. There are similar trends in some other advanced economies.

Other, timelier indicators of house prices than the UK HPI remain strong, suggesting that some of that strength in demand may persist beyond the end of the stamp duty holiday in September.

Bank of England's take on the housing market in today's Financial Stability Report pic.twitter.com/2eKONUhLGA

They also report a rise in the availability of higher loan to value mortgages but the share of new mortgages at or above 90% LTV is still lower than before the pandemic. pic.twitter.com/lw5nD42RNy

10.02am BST

Shares in mining companies are also higher this morning, after stronger-than-expected trade data from China calmed worries about an economic slowdown.

ICYMI! Better than expected #trade numbers from #China. #Exports +32.2% YoY in USD (23% expected) and #imports +36.7% YoY (29.5% expected). pic.twitter.com/6u73tcTf3M

Trade data came in better than expected, with export growth rebounding as global demand stayed strong and imports moderating less than expected.

Exports will likely remain a growth driver for the Chinese economy in the near term. With a higher base, trade growth is likely to level off from over the coming months, but the global recovery and fiscal support in developed economies remain supportive for solid exports, although demand will likely start to shift towards domestic services consumption.

#China merchandise
exports 1-6/2021 vs 1-6/2019 +30%
imports 1-6/2021 vs 1-6/2019 +28%

China's growth continues pic.twitter.com/NR6IwM4xuJ

9.46am BST

The Bank of England's top officials were also asked about whether they're concerned about the boom in private equity takeovers, which often leave companies severely indebted, following leverage buyouts.

Governor Andrew Bailey said the bank doesn't take a view on private equity, but there are general concerns about corporate leverage, particularly in terms of their ability to withstand shocks like the Covid crisis.

Companies that increased their leverage beyond levels that are safe and sustainable are of course in a much less resilient position when a shock comes along and we've had a very big one.

And so I think that very clear message should be to companies: Leverage matters.

9.34am BST

Bank of England flagging some alarm about extent to which banks are moving core ops to cloud computing providers like Amazon, Microsoft and Google. Cloud providers' T&Cs make it hard for BoE to assess their resilience, Andrew Bailey warned.

9.28am BST

Shares in UK-listed banks are among the risers on the FTSE 100 this morning, after the BoE lifted the restrictions on dividend payouts introduced in the Covid-19 pandemic.

Lloyds Banking Group (+2.1%) are the top riser, up a penny at 48.1p, followed by NatWest (+1.7%), with Barclays (+1.3%), HSBC (+1.4%) and Standard Chartered (+1.1%) all higher.

9.11am BST

Andrew Bailey has acknowledged how reliant banks have become on cloud services to run core parts of the banking system [as flagged earlier].

While he understands that the model is opaque (assumedly to protect the system from hackers), he says regulators needs to know that cloud providers are prepared for risks:

We have to balance that, but as regulators and as people concerned with financial stability, and as they become more integral to the system, we have to get more assurance that they are meeting the levels of resilience that we need."

9.03am BST

Asked whether the Bank of England's call to ban and then cap dividend payments during the Covid crisis last year was overkill," Andrew Bailey has firmly disagreed.

The BoE governor tells reporters:

A year ago we were in an unprecedented situation. I think it's very important not to apply judgement of hindsight.

That was a very appropriate step to take....we mustn't forget the emergency situation we were in a year ago."

We've always been clear that we wanted to come back to our normal approach to capital setting and dividends.

We described in December the guardrails we put in place as temporary and as a stepping stone to normality and said we would come out again now in July, informed by the stress tests, so [that's] where we find ourselves today".

The Bank of England has lifted all Covid restrictions on dividends at the UK's largest lenders, paving the way for a boom in payouts even as the pandemic continues https://t.co/RGnIQhyMQf

8.48am BST

The Bank of England left its Countercyclical Capital Buffer (CCyB) r isk buffer at zero percent today, to boost lending.

This tool allows the BoE to adjust the resilience of the banking system, by changing the cushion' of capital that banks need to hold in case of potential losses.

8.42am BST

Bank of England governor Andrew Bailey is leading a press conference on the results of the financial stability report.

He says Covid has been testing the resilience of banks and the effectiveness of new rules introduced in the wake of the financial crisis, and the results are encouraging":

This has been the first big test of the post-financial crisis reforms, notably to the resilience of banks, and so far the results have been encouraging. In recent months the rapid rollout of the UK vaccination programme has led to an improvement in the UK economic outlook.

But the risks of that recovery remain and households and businesses will need continuing support from the financial system."

8.40am BST

The Bank of England is also calling for new measures to address the financial stability risks that could be created by banks moving core services to the cloud, as there are only a few cloud service providers.

The FPC has previously highlighted that the market for cloud services is highly concentrated among a few cloud service providers (CSPs), which could pose risks to financial stability. Since the start of 2020, financial institutions have accelerated their plans to scale up their reliance on CSPs.

Although the PRA [Prudential Regulation Authority] and FCA [Financial Conduct Authority] have recently strengthened the regulation of firms' operational resilience and third party risk management, the increasing reliance on a small number of CSPs and other critical third parties could increase financial stability risks without greater direct regulatory oversight of the resilience of the services they provide.

8.24am BST

Despite the pressures of the pandemic, the UK banking system has the capacity to provide the support the economy needs, the Bank says.

The FPC continues to judge that the banking sector remains resilient to outcomes for the economy that are much more severe than the Monetary Policy Committee's central forecast.

This judgement is supported by the interim results of the 2021 solvency stress test.

Bank of England financial stability report says banks can carry on lending to support recovery, and after interim stress tests have enough capital to withstand further 70bn losses in worst case shock that doubled unemployment...only slight increases in business and household debt

The full effect of the pandemic on households' finances will become clearer as the economy recovers and broader government support for household income unwinds fully, particularly the CJRS, which the Government has announced will run until 2021 Q3.

Under the MPC's May forecast, the projected increase in unemployment associated with the closure of the CJRS is relatively low as the support ends when activity is projected to be much closer to its pre-pandemic level. But if the economic outlook deteriorated without further support, the increase in unemployment and reduction in household income could be more severe than in the MPC's forecast.

Should this risk crystallise, a combination of factors suggests that losses are more likely to arise from consumer credit than mortgage debt.

Historically, there has been a strong correlation between unemployment and consumer credit loss rates. Relative to mortgages, unsecured debt is also more concentrated at the lower end of the income distribution. And lower income households have fared less well through the pandemic as they faced more persistent shocks to income and were less likely to accumulate savings.

notes decade highs in house price growth, attributes to stamp duty holiday and families wanting to move after pandemic experience... riskiest 90%+ lending availability of products has trebled, actual amounts lent v low - 6% of lending in q1 2021, compared to 20% before pandemic pic.twitter.com/g1KtF8t6M5

8.11am BST

The Bank of England has lifted all Covid restrictions on dividends at the UK's largest lenders, paving the way for a boom in payouts even as the pandemic continues.

Officials said banks were strong enough to weather the remainder of the Covid pandemic, and that interim results from the upcoming stress tests - due in December - showed the banking sector remains resilient" despite continued uncertainty.

8.09am BST

The Bank of England fears that insolvencies could rise among UK firms when the government unwinds its support packages as the economy recovers.

The ending of the furlough scheme [Coronavirus Job Retention Scheme] this autumn, the looming repayments on rescue loans, and the end of the temporary restrictions on winding-up petitions will all put pressure on some firms.

But as the economy recovers and government support unwinds as planned, some businesses may face additional pressure on their cash flow and insolvencies could increase...

For example, businesses may face substantial repayments as VAT and rent deferrals begin to lapse, costs could increase as broader government support such as the CJRS unwinds, and businesses that have borrowed under government support schemes will need to start making repayments on them. Additionally, the end of the temporary ban on winding up petitions in September 2021 is likely to lead to an increase in insolvencies over the next twelve months.

It is likely that some businesses have become more vulnerable to insolvency compared to before the pandemic. For example, those that were already facing challenges to their businesses models, or had weak balance sheets at the onset of the pandemic... may have seen their positions worsen.

This pressure could be particularly acute in sectors that are more affected by economic activity being curtailed further should Covid cases rise, such as accommodation and food, and there are some signs of stress emerging. For example, Bank staff analysis suggests that as of January 2021, 11.8% of SMEs in these sectors are already in arrears on their outstanding loans or have formally defaulted [see chart below].

7.58am BST

On the economic front, the BoE says the financial system needs to keep supporting the wider economy as it recovers from the shock of the pandemic.

The UK financial system has provided support to households and businesses to weather the economic disruption from the Covid pandemic, reflecting the resilience that has been built up since the global financial crisis, and the exceptional policy responses of the UK authorities.

In recent months, the rapid rollout of the UK's vaccination programme has led to an improvement in the UK economic outlook. But risks to the recovery remain. Households and businesses are likely to need continuing support from the financial system as the economy recovers and the Government's support measures unwind over the coming months.

7.55am BST

The Bank of England also points to the boom in blank-cheque" companies, or SPACs, that lists on a stock market and then look for assets to buy.

There is also evidence of investors' appetite for risk in the non-price terms in some financial markets.

Public offerings by US non-operating Special Purpose Acquisition Companies - whose ability to generate a return in future is highly uncertain and opaque to investors - hit record highs in 2021 Q1, although the pace of issuance has reduced significantly since.

7.51am BST

This chart from the Financial Stability Report shows how some equity valuations are elevated and some corporate bond spreads are low, relative to historical norms:

7.45am BST

The BoE's Financial Policy Committee cites the price volatility of certain cryptoassets such as bitcoin and ether as an example of risk-taking in the markets.

The rapid appreciation of cryptoasset valuations and recent high levels of price volatility in these instruments could highlight potential pockets of exuberance, they say.

Prices of major cryptoassets such as Bitcoin and Ethereum experienced sharp appreciation over the 12 months to April 2021. In particular, the price of Bitcoin rose six-fold over that period. But it then sold off sharply in May - such that its price fell by around 50% and has remained at this lower level - and remains particularly volatile with price changes skewed to the downside in June 2021. Spillovers to broader financial markets from this episode were limited.

Market intelligence suggests cryptoassets are largely held by retail investors, with institutional investors having limited exposure at present. However, there are some signs of growing interest in cryptoassets and related services from institutional investors, banks, and key payment system operators. These developments could increase the interlinkages between cryptoassets and other systemic financial markets and institutions.

The Bank of England notes in its Financial Stability Report that crypto assets are still 'largely held by retail investors' but rising institutional interest could 'increase the interlinkages between cryptoassets and other systemic financial markets and institutions.' pic.twitter.com/hRhLnakQru

7.38am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There are signs of increased risk taking" in global financial markets and some asset prices look stretched", the Bank of England warns this morning

Risky asset prices have continued to increase, and in some markets asset valuations appear elevated relative to historical norms. This partly reflects the improved economic outlook, but may also reflect a search for yield' in a low interest rate environment, and higher risk-taking.

The proportion of corporate bonds issued that are high-yield is currently at its highest level in the past decade, and there is evidence of loosening underwriting standards, especially in leveraged loan markets. This could increase potential losses in a future stress, and highly leveraged firms have also been shown to amplify downturns in the real economy.

Our latest #FinancialStabilityReport shows what measures we are taking to ensure the financial system remains strong. https://t.co/swIUxHtFNW pic.twitter.com/qbjbGoWeeg

The S&P 500 is now up 100% from its March 2020 lows. pic.twitter.com/3CGWpmqwNw

Sharp decreases in asset prices can amplify economic shocks by impairing businesses' ability to raise finance, primarily through increasing the cost of bond and equity issuance.

Additionally a sharp correction can directly affect the financial system, for example from banks taking losses on assets held in trading portfolios or by reducing the value of collateral securing existing loans, and by creating sharp increases in the demand for liquidity.

In its jargony way, the Bank of England is warning that the corporate bond and leveraged bond markets are looking a bit bubble-like. And we all know what happes to bubbles. /1

#CEIndex China's total imports and exports expanded 27.1% y-o-y to 18.07 trillion yuan(about 2.79 trillion U.S.dollars)in the first half of 2021,official data showed Tue.This marks an increase of 22.8% from the pre-epidemic level in 2019,the General Administration of Customs said pic.twitter.com/b2sIbjvZP7

China June exports and imports both rose more than exp.
Exports +32%yoy, up from +28% in May with exports to EU accelerating.
Imports +37%yoy, down from +51%. Iron ore imports +83%yoy (down from +105%).
Cutting thro the noise & base effects both are strong
(Goldman Sachs chart) pic.twitter.com/ZS2DODd4vm

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