The Bank of England (BoE) has sent private markets participants a hypothetical stress scenario to test their resilience under a “severe, but plausible” global recession over a five-year period.
Under this scenario, the British economy would experience rising inflation and contract four per cent, with the BoE raising interest rates to seven per cent.
The purpose of the stress test is to better understand how banks and non-banks active in private markets interact at a system level, and whether these interactions can amplify stress across the financial system and pose risks to UK financial stability and the provision of finance to the UK real economy.
“Given the growth of private capital over the past decade, we understand why the bank wants to undertake work to develop a clearer picture of how our industry, an increasingly vital contributor to growth in the real economy, would react to a significant, long-lasting economic shock,” commented Michael Moore, chief executive of UK Private Capital.
Moore supports the endeavour by the BoE but also points out the effort should remain proportionate. “The bank’s hypothetical scenario is very severe — more so in some respects than the global financial crisis. So, it is important that in time the exercise is placed in context with the bank’s testing of other parts of the financial sector.”
The regulator said the severity of the shock scenario is broadly consistent with other stress tests it has run, such as the bank capital stress test.
At the end of 2025, the BoE announced its intention to stress test private market participants following the high-profile collapses of auto parts supplier First Brands and auto lender Tricolor.
A number of asset managers, including Apollo Global Management, Arcmont Asset Management, Ares Management, Bain Capital, Barings, Blackstone, Carlyle, CD&R, CVC Credit Partners, Goldman Sachs Asset Management, Hayfin Capital Management, Hg, ICG, KKR, Oaktree Capital Management and Permira voluntarily signed up to participate in the stress test.
Following the completion of the stress test, participating firms will receive aggregated feedback on how other firms acted, including any implications for the financial system and real economy. Participating firms will then have the opportunity to update their responses based on this feedback, the BoE said.
A final report by the BoE is expected to be published in early 2027.
In May, the Financial Stability Board urged supervisory authorities to enact greater disclosure and oversight across the private credit landscape, as to have a better understanding of the benefits as well as the vulnerabilities of the sector.
The Financial Conduct Authority has previously estimated private credit markets to be worth £14.8tn by 2028, with UK assets approximately accounting for £1.2tn.
