The Financial Policy Committee (FPC) was set up after the financial crisis, to oversee the stability of the financial system. It currently operates on an interim basis, but has already made a number of recommendations to financial sector institutions (private or public) with the aim of promoting financial stability – for example on capital and liquidity, and more specifically on the emergence of new, complex financial products. These may have only limited impact on the wider economy, but they do form part of the context for our credit conditions forecast.

When the FPC is fully up and running, with the passing of the Financial Services Act into law, it will also be able to direct the Prudential Regulatory Authority (PRA) to apply specific macro-prudential tools. Proposed tools include: a countercyclical buffer; asset-specific capital requirements; and minimum leverage ratios. These potentially have significant economic effects – for example, the countercyclical buffer would increase capital requirements during the boom-phase of the credit cycle, with consequences for credit provision, demand and output growth. Given the current economic environment, it seems unlikely that such tools would be deployed to significant effect until the later years of our forecast at the earliest. However, we will appraise new tools or policies when they are announced, gathering information and discussing with the relevant authorities, and incorporate our view of their impact into our forecast.