Stock Market Correction Warning By
The Bank Of England
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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