BoE Reports UK Homeowners and Businesses Show Resilience Amid High Interest Rates
BollywoodFever, March 27: The Bank of England reported on Wednesday that mortgage holders and businesses in the UK are managing well despite elevated interest rates, with levels of problematic debt significantly lower than those experienced following the 2008 financial crisis.
Despite the global financial risk landscape being fraught with challenges, including specific concerns around private equity, the UK’s financial system is deemed robust against potential future disturbances.
The Bank’s Financial Policy Committee highlighted in its quarterly briefing that UK borrowers have shown resilience in the face of rising interest rates.
Following the Bank of England’s decision last week to maintain its main interest rate at 5.25%—the highest in nearly 16 years—it noted that inflation was trending towards a reduction that could justify a rate cut. Financial markets anticipate a potential quarter-point rate reduction by June, with expectations fully set for such a move by August.
Since the commencement of rate hikes in December 2021, slightly more than half of households with mortgages have experienced an increase in their debt payments.
The mortgage debt service ratio is expected to climb from 7.0% in the third quarter of 2023 to 8.4% by the end of 2026, which is a slight improvement from the 8.8% forecast in December.
While the percentage of households facing high debt costs in relation to their living expenses is projected to increase slightly to 1.6% by the end of the year, from 1.4%, this is still significantly lower than the 3.4% peak observed after the financial crisis.
The Bank of England also noted an uptick in the number of mortgages extending over 30-year terms, now comprising nearly half of all new mortgages, and acknowledged that some households with very low incomes are struggling with basic needs such as food, albeit without posing a risk to broader financial stability.
Despite entering a shallow recession in the latter half of 2023, the UK economy has shown signs of growth, with expectations for a modest expansion in 2024.
Corporate insolvencies in England and Wales were reported to be 17% higher in February than the previous year and 50% higher than four years ago, prior to the pandemic, with the impact primarily affecting very small businesses.
Overall, corporations are deemed to have maintained their resilience in the face of high interest rates and subdued growth.
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