But this time, the cause was not internal, but originated from a geopolitical hot spot thousands of kilometers away: the conflict in the Middle East.
The Bank of England has 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 household mortgage payments.
The most striking information does not come from the macroeconomic sphere, but from everyday life: an additional one million people will have to face higher monthly mortgage payments due to the collective rise in interest rates set by banks. In total, around 5.2 million homebuyers 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 in two significant ways simultaneously. On one hand, the Strait of Hormuz, a vital navigation route for about a fifth of the world’s oil and gas exports, narrowed, causing energy prices to soar. 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 being quickly liquidated.
When interest rate expectations reversed, the consequences directly impacted the property market: over 1,500 loans were canceled in a short period of time. This is how the credit market quietly contracted, but enough for borrowers to clearly feel the credit tightening.
In this context, the assurances of Bank of England Governor Andrew Bailey that the market had “overanticipated” interest rate hikes sound strangely. History has shown that initial overconfidence can have disastrous consequences. Regarding shocks in 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 problems in the mortgage loan market were “not serious enough to cause a crisis”.
The worrisome 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 have started to limit withdrawals to avoid panic sales by investors — a signal that should not be ignored.
Simultaneously, the pressure of public debt is increasing. The fact that the UK must spend over £100 billion on interest payments alone this year is more than just a budget figure, but a manifestation of increasingly limited political maneuvering room. As this room shrinks, the ability to respond to new shocks also diminishes.
The Bank of England has openly admitted that the world is entering a period of “major, frequent, and potentially coinciding shocks”, followed by “periods of high volatility”. The most worrying aspect is not an isolated shock, but the possibility of multiple weaknesses emerging simultaneously.
At this stage, the risks are still “under control”, as politicians often say. But experience shows that crises rarely arise from an obvious element. They often begin with what is perceived as “controllable.”
