The Bank of England said on Wednesday, July 12, that Britain’s banking system is well capitalized and holds large reserves of liquidity, but that households and businesses are being pressured by rising interest rates.
Banks’ asset quality is relatively strong and high interest rates – currently at 5% – have had limited impact on credit risk, according to a report by the bank’s Financial Policy Committee.
However, the risk environment is challenging, as some forms of borrowing, such as financing commercial real estate investments or home ownership, are more prone to losses with higher borrowing costs, he adds.
Last June, the Bank of England raised interest rates by half a point, from 4.5% to 5%, the highest level since 2008, to control annual inflation in the United Kingdom, which is 8.7%.
The bank added that the profitability of major British banks has increased, which has allowed them to improve capital and support their customers, while smaller lenders also have good capital.
He adds that the percentage of households with high debts has increased and is expected to continue to rise this year, but it is expected to remain below the historical peak reached in 2007.
So far, the British economy has been resilient to the risks of higher interest rates, although it will take some time for the effect to become apparent.
According to the committee, the global economic outlook is “uncertain” just as interest rates have risen around the world due to central banks’ decision to take action to control rising inflation.
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