BoE stress tests to gauge deflation impact

The Bank of England
The Bank of England

The Bank of England (BoE) today unveiled the design of its 2015 stress testing scenario, which includes a new focus on how banks would cope with worsening deflation.

Among a host of changes made to the tests this year, banks will be expected to contend with the higher burden of debt caused by worsening deflation, particularly in the eurozone. This results in a deeper recession as consumption and investment is delayed.

For the UK scenario, the BoE avoided the term "deflation", preferring to say i

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