Financial Policy Committee Record – September 2026

The Financial Policy Committee (FPC) reported that risks to UK financial stability have intensified since its July meeting, with interconnected vulnerabilities more likely to materialise simultaneously. Sovereign bond yields have surged across advanced economies, tightening financing conditions for households and businesses. The FPC noted that while the financial system has shown resilience so far, rapid advancements in AI have introduced new cyber and operational risks that require careful management.

Geopolitical tensions, particularly the re-escalation of the conflict between the US and Iran, have driven significant increases in oil and gas prices, with Brent crude exceeding $100 per barrel and gas prices rising above 175 pence per therm. European gas storage levels remain below EU targets, and maintenance work has reduced gas exports, suggesting energy prices will stay elevated. The FPC highlighted that a prolonged supply shock could amplify financial stress and impair the provision of essential financial services.

Sovereign bond yields in the UK, US, and Japan have reached levels not seen since 2008, reflecting higher interest rate expectations and increased term premia. While market adjustments have been gradual, the FPC warned that deeper interconnections between vulnerabilities could still trigger sharp adjustments. Hedge fund leverage in the gilt market remains elevated, underscoring the need for continued monitoring of gilt repo market resilience.

Advances in frontier AI have accelerated, with models demonstrating greater autonomy and the ability to exploit software vulnerabilities in testing environments. The FPC reiterated concerns that more capable open-weight models could pose risks to financial stability if safeguards are weakened. It stressed the importance of firms preparing for and mitigating AI-related cyber and operational risks, supported by regulators and sector engagement groups.