Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Business

Debt Defaults Due to Higher Interest Rates Could Harm Economy, Warns Bank of England

by June 28, 2024
June 28, 2024
Debt Defaults Due to Higher Interest Rates Could Harm Economy, Warns Bank of England

The Bank of England has issued a warning that the UK economy could suffer if higher interest rates lead private equity-backed companies to default on their debts.

In its latest financial stability report, the central bank highlighted the significant risk posed by the jump in borrowing costs since late 2021.

Private equity-backed businesses account for around 5% of UK private sector revenues and employ about 10% of the UK private sector workforce, which includes over two million employees. The report warns that companies might cut investments or reduce employment after their private equity financiers refinance their debts at higher interest rates.

“The widespread use of leverage within private equity firms and their portfolio companies makes them particularly exposed to tighter financing conditions,” stated the Bank of England in its biannual report.

Recent years have seen several prominent British companies acquired by private equity firms, including Morrisons, which was bought by Clayton, Dubilier & Rice for £7 billion in 2021, and Hargreaves Lansdown, currently in talks with CVC Capital Partners for a potential £5.4 billion deal.

The report also noted that 25% of all debt maturing in risky credit markets over the next five years originates from private equity-backed companies. The central bank urged private equity firms to disclose more information about the size and quality of their assets.

The Bank of England’s investigation into the sector concluded that losses on loans could impact the UK banking system, which has increased lending to private equity firms. This could result in higher borrowing costs for businesses if private equity-backed companies fail to repay their debts, potentially damaging the real economy.

Such a scenario might “reduce investor confidence,” the Bank warned, further increasing financial pressure on businesses and leading to higher borrowing costs.

Interest rates have risen to 5.25%, a 16-year high, from a record low of 0.1%. The private equity industry has expanded significantly during this period of low borrowing costs, growing from $2 trillion in assets in 2013 to $8 trillion today.

Michael Moore, CEO of the British Private Equity and Venture Capital Association, acknowledged the Bank’s concerns but emphasized the industry’s long-term stability and resilience. He noted that many of the Bank’s issues are already being addressed by new regulatory activities from the Financial Conduct Authority.

Meanwhile, the Labour Party has pledged to eliminate a tax rule that allows private equity executives to limit their tax bills if it wins the general election on July 4. Currently, private equity executives benefit from “carried interest” being taxed at the capital gains tax rate of 28%, rather than the combined income tax and national insurance rate of 47%. Labour plans to tax carried interest at the higher rate, addressing a tax break estimated to be worth £4 billion under the current system.

Read more:
Debt Defaults Due to Higher Interest Rates Could Harm Economy, Warns Bank of England

0
FacebookTwitterGoogle +Pinterest
previous post
How to Choose the Right Electric Bicycle
next post
Amazon Sued for £2.7bn by UK Third-Party Sellers Over Anticompetitive Practices

You may also like

Independent Scottish organic whisky distillery Nc’nean secures new...

November 15, 2023

Finalists for The Growth Business of the Year...

February 16, 2023

The Benefits Of Financial Edge NXT For Non-Profit...

December 21, 2023

Company Voluntary Agreements plunge as taxman tightens debt...

August 22, 2022

ASA Raps Huel’s Knuckles Over Misleading Advert

February 20, 2023

Honda and Nissan explore merger amid EV market...

December 18, 2024

Major Update for iPhone Users: Siri to Gain...

June 10, 2024

What to Look for in a Top PHP...

May 15, 2024

Overcome Your Drive and Investigate Further with the...

April 20, 2024

How to Navigate the Challenges of Career Reinvention

July 18, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Trump ally stands firm against ‘big, beautiful bill’ despite pressure: ‘It’ll completely backfire’

      June 8, 2025
    • Rubio condemns assassination attempt on Colombian presidential candidate Miguel Uribe

      June 8, 2025
    • Obama WH physician says Biden doc should have performed cognitive test

      June 8, 2025
    • Trump warns of ‘serious consequences’ if Elon Musk funds Democrats

      June 7, 2025
    • Musk jokes about reconsidering stance on Big Beautiful Bill after Schiff’s praise

      June 7, 2025
    • Musk deletes explosive posts about Trump and Epstein files

      June 7, 2025

    Categories

    • Business (8,152)
    • Investing (2,019)
    • Politics (15,571)
    • Stocks (3,136)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved