Banks braced for doomsday scenario as Carney probes financial strength

Sunday, December 14, 2014
By Paul Martin

Bank of England stress tests: As the UK’s eight biggest banks await the results, the Telegraph outlines the world they are forced to be ready for

By James Titcomb
13 Dec 2014

Christmas 2016 hadn’t been much of a celebration at Number 11 Downing Street. The economic optimism of just three years ago, when the UK was growing faster than any other developed country, stock markets were trading at all-time highs, and a record number of people were in work, seemed like a lifetime ago.

As his car snaked past London’s boarded-up shops and abandoned building projects on the way to the Bank of England, the Chancellor reflected on how things had gone so wrong. After the financial crisis of 2008, everyone had said “never again”, but in many ways, 2014-16 had been even worse.

The first warning signs, he reflected, emerged at the start of 2014, when investors began to seriously worry about the nation’s debt. As targets for cutting the budget deficit were moved back yet again, bond yields started to creep up, and in turn, the pound began to slide. The fall was slow at first, but as investor gloom snowballed and the economists’ forecasts worsened, sterling plummeted.

Within a year, the pound had fallen by 30pc. At the end of 2014, almost 15 years to the day after the introduction of the euro, the single currency became worth more than sterling for the first time.

As a consequence, foreign purchases of oil, consumer goods and other materials became dramatically more expensive, and the cost of living in the UK’s import-dependent economy spiked.

The Rest…HERE

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