Treasury says private credit plays ‘vital role’ in UK economy despite risks

Lord Pitt-Watson, parliamentary secretary at the Treasury, told the House of Lords that private credit "plays a vital role" in financing the UK economy, while stating that the Treasury continues to work with regulators to understand the associated risks. He was responding to a question from Labour peer Lord Spellar, who asked what assessment the Treasury had made of the threat to financial stability posed by the increase in private credit lending.

According to Pitt-Watson, private markets, including private credit, "play a vital role in providing financing to the real economy" and "support innovation and diversify funding sources." He also acknowledged that growth in private markets brings "new vulnerabilities," specifically citing the sector's "increasing complexity, use of leverage, opacity, and interconnectedness with the wider financial system." He added: "HM Treasury continues to work closely with the regulators to understand these risks."

The Bank of England is conducting its first stress test of the sector, with 46 firms, including major private markets players, participating. The findings are set to be published in early 2027. The exercise, known as the System-Wide Exploratory Scenario, presents participants with a hypothetical five-year scenario in which the UK economy contracts by four per cent and interest rates rise to seven per cent.

The Treasury's response reflects a balancing of the sector's economic contribution against its systemic risk profile, a theme that remains central to the regulatory debate over private credit's expansion in the UK.