The Bank of England’s Financial Policy Committee said in its July Financial Stability Report that risks to UK and global financial markets remain “elevated” because of geopolitical tensions, trade fragmentation and persistent pressure on sovereign-debt markets. The committee warned that the environment increases the likelihood of “sharp falls” in risky asset prices and abrupt shifts in investor allocations as traditional correlations between asset classes break down. Even so, the central bank judged that UK households and corporates are “resilient in aggregate” and that the banking system could keep lending “even if the economy is much worse than expected.” Governor Andrew Bailey told reporters that financial stability is “the bedrock for growth.” The FPC left its aggregate cap on high loan-to-income mortgage lending unchanged at 15 per cent of each lender’s new loan flow, while allowing individual banks to make fuller use of the limit. Roughly 10 per cent of new mortgages currently exceed 4.5 times a borrower’s income, so the clarification could permit more riskier loans and help some first-time buyers without, in the committee’s view, posing a systemic threat. Policymakers also highlighted growing leverage among hedge funds active in the gilt market and cautioned that uncertainty is prompting companies to delay capital spending, which Bailey said may have a modest impact on employment. The committee said it will continue to monitor non-bank financial institutions and stands ready to act if market stress threatens the flow of credit to the real economy.