The private equity boom has been a long-standing trend in the UK economy, but officials at the Bank of England are currently investigating its potential impact on funding for UK businesses. They have expressed concerns about issues such as leverage, transparency, and valuations in private markets. The BoE’s financial policy committee has stated that the risk environment is challenging, with an increased likelihood of a sharp correction in some markets as prices continue to rise despite uncertainty in the economic outlook.
If there is a reversal of the private equity boom, there could be particular vulnerability in funding for riskier corporates. This includes private equity firms that are facing higher borrowing costs, as well as UK companies that rely on them for funding. Officials have noted that there may be an increased likelihood of a significant deterioration in investor risk sentiment, which could lead to difficulties in securing financing for these companies.
In response to these concerns, the BoE has promised to conduct further research on the connections between private equity firms and the companies they fund. They are working to address potential vulnerabilities in the financial system and ensure that businesses have access to the funding they need to grow and succeed. As they continue their investigation, officials remain committed to monitoring risks to financial stability and implementing policies to mitigate them.
