Britain's financial system is more stable today than it was six months ago but remains vulnerable to shocks, particularly if lending to households and businesses does not pick up and the economy stalls again, according to the Bank of England's latest financial stability report.

The report noted that equities markets around the world had risen by 25 to 35 per cent since their trough in mid-March, while investors' appetite for credit risk had led to higher prices on corporate bonds. "Perceptions of banks' resilience have improved, supported by conversions of preferred shares to common equity, private sector capital raising and government support," the report said.