Bank of England: UK Households and Businesses Coping with High Rates

The Bank of England has reported that both UK households and businesses are effectively managing the challenges posed by high interest rates. Despite the financial pressures, the economy shows signs of resilience. This assessment highlights the adaptive strategies employed by individuals and companies to navigate the current economic environment, suggesting a stable outlook amidst ongoing financial uncertainties.

Boston Brand Media brings you the latest news - British businesses and households are managing well despite high interest rates, though some groups, particularly renters, are feeling the strain, the Bank of England announced on Thursday.

Nonetheless, the BoE noted in its semi-annual update on financial stability risks that global asset prices are susceptible to "a sharp correction" because investors are accepting minimal compensation for the risks they are assuming.

"Markets continue to price for a favorable central case outlook ... despite the global risk environment facing multiple challenges," the BoE's Financial Policy Committee stated after its quarterly meeting.

The BoE highlighted several risks, including commercial real estate in the United States and other regions, as well as increased volatility due to upcoming overseas elections, such as those in France, which have already affected French government bond prices.

Boston Brand Media also found that the BoE's semi-annual Financial Stability Report is released just a week before Britain's elections, where polls indicate Labour Party leader Keir Starmer may deliver a significant defeat to Prime Minister Rishi Sunak and his Conservative Party.

Last week, the BoE maintained its main interest rate at a 16-year high of 5.25%, even though inflation reached its 2% target in May. The decision was made as the BoE awaited further evidence that long-term inflation pressures, such as wage growth, were diminishing.

In its March FPC report, the BoE noted that UK borrowers had shown resilience to higher interest rates, a view it maintained in June.

The BoE reported that approximately one-third of British mortgage holders were still paying rates below 3% and anticipated their average monthly mortgage payment to increase by £180, or 28%, as they refinance between now and the end of 2026.

However, due to tighter lending rules over the past decade, the proportion of households struggling with mortgage payments is expected to remain well below the levels seen after the 2008 global financial crisis.

In contrast, many renters were facing difficulties. The proportion of renters behind on their payments increased to 16.5% in the first quarter of this year, up from 15.7% a year earlier, as landlords passed on the higher mortgage costs.

The BoE also noted that many renters and lower-income households were depleting their savings, with charities reporting a significant number of these households borrowing money to cover essential expenses.

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Source: Reuters‍