London Daily

Focus on the big picture.
Monday, Oct 26, 2026

How Silicon Valley Bank chaos has had a bearing on us all - and why we're in for a bumpy few months

How Silicon Valley Bank chaos has had a bearing on us all - and why we're in for a bumpy few months

If inflation does stay a lot higher than the central banks expect, then we could be in for a more turbulent time. And how worried should we be about that? The next few months will tell, but for the time being there's good and bad news.
Tempting as it is to believe that the chaos with Silicon Valley Bank and its British arm are of interest only to members of the tech community and financial nerds, it has already had a very real bearing on all our lives.

For evidence, look no further than the money markets, where investors bet on the future path of interest rates.

Up until last Friday, they were expecting UK interest rates to peak at around 4.75% - possibly even a little bit higher.

But the shock of the bank collapse caused a sudden reappraisal. By Monday evening, they were pricing in a peak of only 4.25% - a very big fall by the scheme of these things. It was a similar story in the US, where the expected peak for rates dropped by around half a percentage point.

Why are these two stories - interest rates and an obscure bank collapse - colliding?

In large part it's because they were always intertwined - not that anyone paid much attention before last week.

Part of the reason Silicon Valley Bank (SVB) suffered its demise was because over the past 18 months rising interest rates had caused a sharp fall in the value of bonds held by the bank.

It was, in large part, those losses and the impact on SVB's balance sheet that prompted depositors to run from the bank late last week (which in turn triggered the UK branch's collapse).

In other words, one of the consequences of SVB's implosion is that the Federal Reserve and Bank of England might become a little more wary of raising interest rates in future.

Everyone knew there were unexploded bombs in the financial system which would begin to explode when money got more expensive; the fear now is that there may be more explosions to come.

This isn't the only explanation for why rate expectations have come down. There's also the fact that the chaos at SVB, Signature bank (which also failed) and across much of the US banking system might dampen economic growth or even precipitate a recession.

And, for the most part, central banks tend to cut rates rather than raise them in the face of a recession. And we were already getting close to the potential peak in borrowing costs.

Even so, this interplay between an extremely nervous financial system and interest rates is a big part of the story.

Which brings us to some of the consequences.

'Things could get pretty gritty'

Let's assume the Fed and the Bank of England are indeed going to allow interest rates to peak at a lower rate than previously expected.

Does that mean that we have to expect higher inflation in future? What if inflation turns out to be considerably more sticky than most central banks expect (they mostly think it'll come down pretty quickly)?

The short answer is that things could get pretty gritty: the Bank of England is duty bound to try to keep inflation low and to try to keep the financial system stable, but among the many things illustrated by the SVB episode is that those two objectives can sometimes clash with each other.

In this case, higher interest rates (to fight inflation) contributed to financial instability. Yes, there was lots else going on besides - there's a strong case to say the Fed wasn't doing enough to monitor the risk posed by unusual banks like SVB - but the rising cost of money is a big part of the story.

There's good news and bad news

If inflation does stay a lot higher than the central banks expect, then we could be in for a more turbulent time.

And how worried should we be about that? The next few months will tell, but for the time being there's good and bad news.

The good is that the headline consumer price index in both the UK and US seems to have been faring more or less as the central banks expected - gradually coming down. Earlier today, the US CPI came in at an annual rate of 6% - bang in line with expectations.

The bad news is that when you look beneath the surface, there are some hints that inflation could prove more stubborn than expected.

In particular, core inflation - the behaviour of prices once you strip out volatile items like energy and food - is still building, especially when you ignore housing costs. That suggests there's still upwards pressure on prices.

And sure enough, immediately after the release of those numbers, interest rate expectations rose a little, both in the UK and US.

Now, UK rates are expected to peak not at 4.25% but 4.4% (which in practical terms means a fair few people - though not everyone - expect 4.5% rates).

In short, we're in for a bumpy few months.
Newsletter

Related Articles

0:00
0:00
Close
Education or Indoctrination? The Growing Debate Over Religious Participation in British Schools
Germany's Vanishing Shopfronts: The Silent Collapse of the Businesses That Built Its Cities
Transport for London Unveils Expanded Zero-Emission Bus Fleet to Meet Capital Air Quality Targets
Higher Education Institutions Face Deepening Financial Strain Amid Declining International Student Enrolment
Automotive Industry Leaders Criticize Government Tax Policies and Urge Action on Retail Consumer Confidence
Environment Agency Issues Flood Alerts Across Scottish and English Waterways Following Heavy Rainfall
Independent Audit Highlights Persistent Security Vulnerabilities Across Legacy Government Digital Portals
Northern Ireland Political Leaders Clash Over Westminster Funding Allocations Ahead of Autumn Budget
Ethnic Minorities in England Face Significant Disparities in Routine Breast Cancer Diagnosis Rates
National Police Chiefs Report Alarming Surge in Domestic Abuse Cases Fuelled by Expanding Illegal Cocaine Market
Government Announces Two Hundred and Twenty Million Pound Pothole Funding Boost for Local Highway Authorities
China Issues Formal Warning Over Potential United Kingdom Restrictions on Chinese Electric Vehicles
British Defence Ministers Sign E5 Pact to Enhance European Military Capabilities and Industrial Cooperation Within NATO
United Kingdom Business Activity Expands at Fastest Pace in Eight Months According to S&P Global Flash Survey
Chancellor John Healey Prepares Major Devolution Package and Bank Profit Surcharge Ahead of Upcoming Autumn Budget
National Health Service Consultants in England Announce Two-Day Strike Action Scheduled for November
Major Clean-Up Under Way Across Britain Following Destruction Caused by Consecutive Storms Austen and Boelo
KEY TRENDS TO WATCH
Declassified Intelligence Files Reveal British Security Services Monitored National Health Service Founder
British Government Launches Sweeping Regulatory Crackdown on High-Risk Cosmetic Procedures
Scottish National Party Demands Ban on Using Scottish Revenues to Fund English Nuclear Energy Projects
Mayor of London Initiates Landmark Pedestrianisation of Oxford Street to Revitalise Global Retail Hub
British Judges Granted Expanded Legal Powers to Punish Convicted Killers Who Refuse to Attend Sentencing
United Kingdom Poised to Miss Reduced International Aid Spending Targets Ahead of Fiscal Review
Surging Cocaine Consumption Drives Record Drug Fatalities and Rising Crime Rates Across Britain
Department of Health and Social Care Announces One Hundred and Forty Million Pound Boost for Urgent Care
British Services Sector Records Strongest Growth in Eight Months Despite Broader Economic Uncertainty
United Kingdom Retail Sales Suffer Unexpected Decline as Consumer Confidence Plummets
Greater Manchester Mayor Andy Burnham Urges National Debate on Restoring European Union Free Movement
Deep Cabinet Divisions Emerge Over Controversial Approval of North Sea Fossil Fuel Projects
United Kingdom Government Urges Citizens to Stockpile Essential Supplies in National Resilience Pivot
Storm Boelo Kills Two People and Cuts Power to Tens of Thousands Across Great Britain
Critical Software Flaw Forces Dozens of United Kingdom Government Services Offline Amid Mass Security Warnings
UK Consumer Confidence Tumbles Amid Rising Energy Costs and Global Commodity Price Pressures
North Sea Transition Authority Approves Production from Jackdaw Gas Field to Bolster Domestic Energy Security
Storm Boelo Leaves Tens of Thousands of Households Without Power Across Scotland and Northern Ireland
UK Government Launches National Be Ready Campaign Urging Households to Prepare Three Days of Emergency Supplies
Department for Environment Food and Rural Affairs Implements Stricter Water Quality Regulations for British Rivers
Welsh Government Launches Major Renewable Energy Initiative to Expand Offshore Wind Capacity Along the Coast
Northern Ireland Executive Reaches Final Agreement on Comprehensive Regional Infrastructure Modernization Plan
Office for National Statistics Reports Moderate Increase in British Retail Sales Driven by Autumn Discounts
Scottish First Minister Announces Emergency Housing Strategy to Tackle Severe Homelessness Across Urban Centers
Automotive Industry Leaders in the United Kingdom Urge Government Support for Electric Vehicle Manufacturing Transition
United Kingdom and European Union Initiate High-Level Negotiations on Post-Brexit Defense and Security Pact
National Health Service England Introduces Sweeping Digital Reforms to Reduce Hospital Waiting Lists Nationwide
Chancellor of the Exchequer Outlines Emergency Fiscal Measures to Address Local Government Funding Crises Across England
Bank of England Governor Warns of Persistent Inflation Pressures Impacting Interest Rate Decisions in the United Kingdom
UK Conservative Party Suspends Former Electoral Candidate Following Undercover Investigation
Actors and Writers Condemn British Anti Terror Legislation Targeting Activist Groups and Free Speech
Central Bank and Treasury Monitor Inflation Risks as International Monetary Fund Upgrades United Kingdom Growth Forecast
×