The BoE said that the high value of financial assets might correct significantly if investors reassess the prospects for the economy's recovery from COVID-19, and there are signs of higher risk-taking at investment banks.

In a statement, the BoE's Financial Policy Committee (FPC) mentioned that there was still evidence of increased risk-taking in numerous financial markets relative to historic levels.

Stock indexes reached record highs in recent months as investors bet on a rapid rebound from the pandemic, but inflation has recently become a concern, and growth has gotten patchier due to supply-side bottlenecks.

Households in Britain and beyond are facing an additional detriment to their spending power from surging energy prices.

"If, for example, participants re-evaluate the prospects for growth, inflation, or interest rates, asset valuations may correct sharply," said the statement.

"There are indications of further loosening of underwriting standards and increased risk-taking in some investment banking businesses."

The FPC expressed concern about how Evergrande Group could meet its financial responsibilities.

"A disorderly failure might pose dangers to China's broader property sector, with potential international spillovers," it said. However, the BoE's stress tests of banks this year revealed that UK lenders would be able to withstand a severe downturn in China and Hong Kong, as well as sharp adjustments in global asset values, it noted.

While growth in house prices reached levels last seen before the financial crisis over a decade ago, the FPC found little evidence of a drop in lending standards.

Debt servicing remained affordable for the majority of businesses, it added.