But this time, the cause was not internal, but came from a geopolitical hotspot thousands of kilometers away: the conflict in the Middle East.
The Bank of England recently warned that the UK is at risk of a financial crisis that could plunge households into a spiral of rising borrowing costs and inflation, due to the conflict in Iran. This warning is not just a technical analysis, but rather a reminder of the extreme interconnectedness of the current global financial system: even a minor energy shock can have cascading repercussions, from capital markets to households’ mortgage payments.
The most striking information does not come from the macroeconomic domain, but from everyday life: an additional one million people will have to face higher mortgage repayments due to the collective increase in interest rates by banks. In total, around 5.2 million homeowners will be affected by this increase by 2028. This is no longer a systemic risk, but direct pressure on every household, on every bill.
This shock occurred simultaneously in two significant ways. On one hand, the Strait of Hormuz, a vital shipping lane for around a fifth of the world’s oil and gas exports, has narrowed, causing a surge in energy prices. On the other hand, financial markets reacted almost instantly: hedge funds were forced to liquidate their largest positions, nearly £19 billion betting on falling interest rates were quickly unwound.
When interest rate expectations reversed, the consequences directly impacted the housing market: over 1,500 loans were canceled in a short period of time. Thus, the credit market contracted quietly but enough for borrowers to clearly feel the credit tightening.
In this context, the assurances of the Governor of the Bank of England, Andrew Bailey, that the market had “anticipated too much” in terms of interest rate hikes, sound strangely. History has shown that initial overconfidence can have disastrous consequences. Regarding shocks to the private credit market, Andrew Bailey himself acknowledged this sense of history repeating itself by mentioning the 2008 crisis, a time when many believed that the problems in the mortgage market were “not severe enough to cause a crisis.”
The worrying difference now lies in the risk structure. If the 2008 crisis was centered on banks, the epicenter could now be outside the traditional system. In the private credit market, which represents $18 trillion, funds began limiting withdrawals to avoid panic selling by investors – a signal that should not be ignored.
Meanwhile, the pressure from public debt is growing. The fact that the UK must spend over £100 billion on interest payments alone this year is not just a budget figure, but a manifestation of increasingly limited political maneuverability. As this margin shrinks, the ability to respond to new shocks also diminishes.
The Bank of England has bluntly admitted that the world is entering a period of “major, frequent, and potentially simultaneous shocks,” followed by “periods of high volatility.” The most worrying aspect is not a single shock, but the possibility of multiple weaknesses emerging simultaneously.
At this stage, the risks are still “under control,” as policymakers often say. But experience shows that crises rarely arise from an obvious element. They often start with what is perceived as “manageable.”
