UK faces biggest financial risk since Lehmans

Britain faces its biggest risk of financial crisis since the collapse of US investment bank Lehman Brothers, the Bank of England’s survey of hedge funds, lenders and insurers has found.

The threat of meltdown facing the UK may be greater now than in the months before Lehmans failed, according to the Bank, with 54% of respondents fearing that the risk of a high impact event striking the financial system is ‘high’ or ‘very high’.

The Bank of England said that respondents to its twice-yearly survey have not felt as pessimistic about the health of the British economy since its survey was created back in July 2008, two months before Lehmans defaulted and thrust the world into recession.

A eurozone crisis ranked high on the list of risks feared most by the 68 City institutions that took part in the study, underlining the scale of the crisis the UK could face if the turmoil in Europe is not brought under control.

Funding risks were also raised by respondents to the Bank’s Systemic Risk survey.  Close to 60% of respondents cited this is a major concern – a reading surpassed only by the sovereign risk and a fall back into recession.