In the UK, we have seen some signs, from the Bank’s Market Participants survey10 and the Decision Maker Panel survey of businesses, of expectations becoming more skewed to the right over 2022 relative to previous years, with a larger share of respondents expecting higher inflation in the medium term. There is a range of views among members of the MPC as to whether developments in inflation expectations and the potential for them to become de-anchored add to the other risks around the inflation outlook11. My concerns about the emergence and embedding of an inflationary mentality has been one of the factors contributing to my minority votes for a faster pace of tightening, first in February and again in September this year. 9  See The Burst of High Inflation 2021-22: How and Why Did we Get Here, Reis June 2022 and Losing the Inflation Anchor, Reis Oct 2021 10 See Market Participants Survey results – November 2022 | Bank of England 11 Inflation expectations, inflation persistence, and monetary policy strategy – speech by Catherine L. Mann | Bank of England  Bank of England  Page 10  Market reactions to UK monetary and fiscal policy  Global financial markets have been increasingly volatile over the last year, in particular as markets have responded to increased evidence of persistence in inflation and central banks’ policy actions and communications in reacting to it.
In addition, the local banks’ all-currency liquidity coverage ratio (LCR) are already above 100%, well ahead of Basel’s implementation timeline of 1 January 2019. 11. However, we should not be complacent. Banks should continue to improve risk management processes, and watch out for risks arising from new and emerging trends such as persistently low interest rates, increasing interconnectedness between financial institutions and markets, and the growing use of sophisticated technology. 2  BIS central bankers’ speeches  12. Stress tests will become an increasingly important and integral part of risk management in the financial sector. •  For individual participating banks, the results facilitate discussions with MAS on their resilience to plausible adverse scenarios, planned responses, and actions to mitigate risk management gaps identified from the exercise. •  For the banking sector, the stress test results help to identify common vulnerabilities across FIs, such as exposures to a particular sector or country. This helps banks enhance their risk mitigating responses. 13. To make the exercise more useful, MAS encourages banks to compare the IWST results against their internal stress tests and sensitivity analyses and to assess whether the differences in scenarios and corresponding results reflect particular risk exposures faced by the bank. 14. In addition to prescribed scenarios, MAS has also been working with participating banks to conduct reverse stress tests. This involves banks describing scenarios under which their solvency could come under threat, thereby providing further insights on the risks that could impair the financial system.