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Lender risk officers fear sharp rise in interest rates

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  • 18/11/2013
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Lender risk officers fear sharp rise in interest rates
Increasing numbers of financial risk officers see low interest rates as a risk to their firm, a Bank of England survey has revealed.

More than two-fifths of risk officers identified low interest rates as a risk, compared to a quarter in the previous survey. For the second survey in succession, the low interest rate environment was the fastest growing category of perceived risk.

Of those who identified low interest rates as a risk, two-fifths specifically feared a sharp rise in interest rates. The remaining responses highlighted the impact of continued low interest rates.

More than a third of risk officers also identified risks around property prices, with several respondents suggesting a house price bubble could emerge in the near future.

Berenberg Bank UK chief economist Rob Wood said the Bank of England’s policy of keeping interest rates low risked building a bubble: “I do not think we are in a nationwide bubble yet but London is much closer. Holding interest rates at rock-bottom levels for the next couple of years, along with the government’s Help to Buy schemes, risks setting off a damaging boom in house prices.

“Another risk is the longer you hold them low the greater the shock when they eventually rise. You can potentially have financial problems among households.”

The survey is typically completed by executives responsible for risk management at UK banks and building societies, large foreign banks, asset managers, hedge funds and insurers.

Concerns about the Eurozone, the US debt ceiling negotiations and the prospect of another economic downturn were among the top risks mentioned by those polled. Two-fifths of respondents also noted the risk posed by regulation and taxes.

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