News release
The Bank of England (the Bank) has today launched the 2025 Bank Capital Stress Test for the seven largest and most systemic UK banks and building societies. The exercise is the successor to the Annual Cyclical Scenario (ACS).
The test involves a hypothetical stress scenario which will be used to assess the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, large falls in asset prices, higher global interest rates, and a stressed level of misconduct costs.
The stress scenario is not a forecast of macroeconomic and financial conditions. Rather, like previous concurrent stress test scenarios, it is intended to be a coherent ‘tail risk’ scenario designed to be severe and broad enough to allow the Financial Policy Committee (FPC) and Prudential Regulation Committee (PRC) to assess the resilience of UK banks to a range of adverse shocks. This tail risk scenario is used for the purposes of enhancing financial stability and promoting the safety and soundness of UK banks. By doing so the Bank aims to ensure banks can absorb rather than amplify shocks and have the capacity to continue to serve UK households and businesses.
The 2025 Bank Capital Stress Test has three elements, which include a macroeconomic scenario, a financial markets and traded risk scenario and a misconduct stress.
The macroeconomic scenario involves a severe global aggregate supply shock leading to deep recessions in the UK and globally. Selected key elements include:
- UK GDP falls by 5% in the early part of the scenario;
- World GDP falls by 2%;
- UK unemployment almost doubles to a peak rate of 8.5% in the third year of the scenario, similar to the peak level experienced in the global financial crisis.
- World trade falls by 20%;
- Oil and gas prices rise sharply;
- Inflation peaks at 10% before falling back to the 2% target by the end of the scenario;
- Bank Rate is increased to a peak of 8% and is then lowered over the scenario as inflation returns to the target;
- UK residential property prices fall by 28%.
The test is also the first since the end of transitional arrangements for the International Financial Reporting Standard 9 (IFRS 9) accounting standard, introduced in 2018. The FPC has judged that the change in accounting standards should not lead to an unwarranted increase in capital requirements for the UK banking system. In this context, the Bank is implementing a number of changes relative to past concurrent stress tests which are designed to be consistent with an unchanged FPC and PRC risk tolerance for the resilience of the UK banking system. The Bank intends to use this year’s test to assess the impact of these changes and inform future stress tests.
The results of the test will be informed by both the Bank of England’s and participating banks’ estimates of the impact of the stress scenario. The results will be published at an aggregate and individual bank level in 2025 Q4. The results will be used to inform the setting of capital buffers for the UK banking system and individual participating banks, and to inform a broader understanding of risks in the banking system.
As set out in the Bank’s updated Approach to Stress Testing the UK Banking System, published in November 2024, the Bank expects to undertake a Bank Capital Stress Test involving submissions from participating banks every other year.
Notes to editors
- Key elements documents
- The seven participating banks and building societies are: Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander UK and Standard Chartered. They represent 75% of lending to the UK real economy.
- The Bank of England’s approach to stress testing the UK banking system