Bond financing conditions and economic activity in the UK: aggregate and firm-level evidence

Eduardo Maqui, Nicholas Vause and Márcia Silva-Pereira

In recent decades, the corporate bond market has grown from a relatively niche source of finance for UK corporations to a central pillar alongside bank loans. This transition raises an important question: as with bank credit conditions, have supply conditions in the corporate bond market come to significantly affect UK economic activity? Our recent research suggests the answer is a resounding yes. We show that a measure of corporate bond financing conditions − the Excess Bond Premium (EBP) − not only anticipates macroeconomic outturns in the UK, but also influences investment by UK firms, especially those that are highly leveraged and more reliant on bond finance.

Continue reading “Bond financing conditions and economic activity in the UK: aggregate and firm-level evidence” →

Monetary policy, state-dependent bank capital requirements and the role of non-bank financial intermediaries

Manuel Gloria and Chiara Punzo

The expansion of non-bank financial institutions (NBFIs) is transforming the financial landscape and introducing fresh challenges for financial stability and oversight at the same time as creating opportunities. Using a dynamic stochastic general equilibrium (DSGE) model, we find that while NBFIs may enhance long-term welfare for households and entrepreneurs in normal conditions, their greater role also heightens vulnerabilities to severe shocks in the financial system. Greater NBFI activity boosts competition in the financial sector, leading to more efficient resource allocation. A working paper detailing these results was recently published.

Continue reading “Monetary policy, state-dependent bank capital requirements and the role of non-bank financial intermediaries” →

A public-private partnership: central banks as a funding backstop

Matthieu Chavaz, David Elliott and Win Monroe

Large-scale provision of long-term funding to banks has become a central bank tool to support credit supply during downturns. However, scholars have worried that allowing banks to rely on public funding could create moral hazard and crowd out private funding. In a recent paper, we address these concerns by showing that central bank and private funding can be complements rather than substitutes. The mere availability of central bank funding improves private wholesale funding conditions, thus supporting lending without central bank funding being used. This ‘equilibrium’ effect makes central bank funding more powerful than previously thought. Finally, the fact that central bank funding comes with strings attached can help to explain why it is an imperfect substitute for private funding.

Continue reading “A public-private partnership: central banks as a funding backstop” →

Measuring banking resilience to adverse outcomes

Giovanni Covi and Tihana Škrinjarić

The ability of the banking system to absorb shocks and continue providing vital financial services is important because it underpins the smooth functioning of the broader economy. We propose a methodology that serves as a valuable tool for monitoring banking system stability. It quantifies the resilience of the banking system given the prevailing macrofinancial risk environment. The main measure we derive is the probability that one or more banks will fail to meet regulatory capital or liquidity requirements within a given horizon.

Continue reading “Measuring banking resilience to adverse outcomes” →

Can regulation drive innovation in finance? Lessons from green mortgage products

Benjamin Guin, Mahmoud Fatouh and Haluk Unal

Regulation has been asserted to be a brake on innovation. Prudential rules impose capital, liquidity and disclosure requirements, as well as stress tests, to strengthen resilience and manage risks – though some view them as potentially limiting financial innovation. Yet recent evidence from the UK mortgage market suggests the opposite: regulation can sometimes catalyse innovation, not suppress it.

Continue reading “Can regulation drive innovation in finance? Lessons from green mortgage products” →

Monitoring trade prices in the wake of trade tensions

Marco Garofalo and Thomas Prayer

The US administration raised US import tariffs in April, reigniting trade tensions. This sparked concerns about cheaper exports being diverted to other markets, potentially lowering global prices. Using detailed product-level data, we build a novel timely indicator to consistently track trade prices across countries. Chinese export prices have risen less than global ones since April and remain below March levels. Prices of other Asian exporters, Canada and Mexico have also grown more slowly than global prices, but to a more limited extent, while export prices for Europe grew faster than global patterns. UK import prices mirror those in Europe, whereas US import prices (excluding tariffs) have declined since March 2025. Our results and future updates are publicly available online.

Continue reading “Monitoring trade prices in the wake of trade tensions” →

Generative AI: degenerative for jobs?

Edward Egan

Headlines warn of a looming ‘jobpocalypse’, but the reality is more complex. Rather than simply causing a wave of job losses, the economic literature suggests generative AI could influence the labour market through several – potentially offsetting – channels: productivity gains, job displacement, new job creation, and compositional shifts. The balance between these effects, rather than displacement alone, will shape AI’s aggregate impact on employment. The latest research suggests that overall effects remain limited so far, but there are some early signs of AI’s impact. I find that, since mid-2022, new online vacancies in the most AI-exposed roles have decreased by more than twice as much as the least exposed group. This highlights the need for ongoing monitoring as AI adoption accelerates.

Continue reading “Generative AI: degenerative for jobs?” →

Retail investors’ participation in the gilt market

Sarah Munson and Callum Ashworth

In recent years, retail investors’ demand for UK government bonds (gilts) has increased, marking a change in the composition of market participants. The growth of retail investors, comprised of individuals managing their own portfolios, has been a global phenomenon (Foxall et al (2025)). But what’s driving this change, and what does it mean for the gilt market’s role in monetary policy and financial stability? In this post we explore how UK-based retail participants’ presence in the gilt market is changing and what that might signal for the future. We find that retail holdings of gilts remain modest, with positions concentrated in a handful of bonds. This has limited impact on aggregate liquidity indicators but can impact liquidity in these specific bonds.

Continue reading “Retail investors’ participation in the gilt market” →

The Bank Underground Christmas Quiz 2025

Image of the Bank of England during Winter with partial snowfall.

Bank Underground is about to take a break for the festive season. In keeping with tradition, we are pleased to present the annual Bank Underground Christmas Quiz! This year, it’s been prepared with the kind assistance of the Bank of England’s Archive team. We hope you enjoy testing your knowledge of the Bank’s history, especially how it has marked Christmas in years past. We wish our readers a very happy festive season!

Continue reading “The Bank Underground Christmas Quiz 2025” →