THE financial systems of the world in general, and Britain in particular, have become more stable over the past six months as the world economy has improved, the Bank of England said yesterday.
However, the bank cautioned in its twice-yearly Financial Stability Review that the rapid build-up of household debt in Britain and elsewhere could be storing up trouble for the future even though the current situation was manageable.
The review said most financial institutions in the United Kingdom and overseas appeared to have weathered the volatility of equity markets, interest rates and exchange rates during 2003.
The Bank became the world’s first major central bank to raise interest raise for several years last month when it hiked its key repo rate by a quarter-point from a 48-year low of 3.5%.
Analysts say more rises are in the pipeline as the British economy picks up speed and expect other major central banks to begin to raise rates next year after several years of cuts as the global recovery gathers pace.
The review also noted that there had been a significant build-up in hedge fund activity in the past six months, although without any identifiable problems at this stage, and called on financial authorities to monitor any vulnerabilities among hedge funds carefully.
It was the crisis at hedge fund Long-Term Capital Management in the late 1990s that almost brought the world financial system to its knees.
