The analysis which lies behind the FRO helps inform how the FSA sets priorities and deploys its resources. The FRO has been divided into the following four sections: Macroeconomic background and outlook, Financial Stability and Prudential Risks and Issues, Market Risks and Issues, and Retail Conduct Risks and Issues.
“Domestic and global GDP levels have stabilized and are showing signs of recovery. However, the exact path of the UK’s recovery is still uncertain and will be influenced by the way in which vulnerabilities present in the government, household, corporate and financial sectors unfold, as well as the path of the global economy. Our central scenario, based on a consensus of the main private sector forecasting institutions, is for UK economic growth to accelerate steadily throughout 2010. Household spending and business investment will stabilize, but weaknesses will persist. This scenario places the UK economy on a ‘V’-shaped growth path, but depends on external demand as the principal driver of recovery. In this base case scenario it should be possible to combine sustained, steady economic recovery with fiscal consolidation and gradual deleveraging by households and parts of the non-financial corporate sector. But continuing high leverage will, for a number of years, leave many households and companies more vulnerable to any economic shocks that lead to higher interest rates or falling income. This will mean continued high risks for financial firms”.