WEF highlights risk of UK’s reliance on financial sector

by Gill Montia

Story link: WEF highlights risk of UK’s reliance on financial sector

A report issued by the World Economic Forum (WEF), ahead of this month’s meeting of world political and business leaders at the annual World Economic Forum in Switzerland, has highlighted the exposure of the UK economy in its reliance on the financial sector.

The Global Risks report assesses the current economic and political risks as the most severe that the world has faced in a decade, and concludes that Britain is more exposed than most developed nations to fallout from the global credit squeeze.

It considers the serious risk that the credit squeeze could push the US into a recession and argues that the fall out from the US sub-prime mortgage crisis raises “fundamental questions over the vulnerabilities of the current model of financial markets”.

In this respect the report describes the “complexity and near-infinite feedback loops of the modern financial system” as having “exposed it to a small risk of very large systemic shocks”.

As a result, the system is “now more prone to excessive instability in really bad times.”

The authors are proposing a re-examination of the global financial system and suggesting that “new thinking may be urgently required” as well as “increased public and private sector collaboration on stress testing, liquidity management, risk assessment and prevention”.