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Stress testing the UK banking system: key elements of the 2022 annual cyclical scenario

On 26 September 2022, the Bank of England announced that it was returning to the annual cyclical scenario stress-test framework. The stress test will test the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies. It will assess bank balance sheets and the resilience of the UK banking system. While previous stress tests have incorporated the impact of higher interest rates in the UK, this stress test will for the first time test UK banks’ resilience to higher global interest rates, in the face of a series of global cost shocks and high and persistent global inflation. For the first time, and as announced previously, the stress test will also assess the ring-fenced subgroups of the existing participating banks on a standalone basis, where these differ materially from the group as a whole. The results of the stress test will be published next summer and will be used to help inform banks’ capital buffers.

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