BOE: Households And Businesses Remain Resilient So Far, But Risks Remain

The BoE Q4 Financial Stability Report stated that households and business have remained resilient to challenging conditions "so far", but risks remain as higher interest rates continue to pass-through the system.

• The CCyB buffer was maintained at 2%, as the banking sector also shows resilience, with robust capital and liquidity positions.
• The BoE estimates that 55% (around 5 million) mortgages have been repriced since rate hikes began, with the remainder to roll-over by 2026. Mortgage debt servicing burdens are expected to increase, but remain below levels seen in the GFC.
• Robust earnings growth has helped corporate debt service ratios, but disparity can be seen within sectors. 
• The BoE continues to track risks associated with UST basis trades by hedge funds, noting that nominal UST shorts by HFs are now larger than during the dash-for-cash in 2020.
• The FPC said that it welcomed FCA proposals to enhance money market fund daily liquid asset requirements to 15% (vs 10% prior) and weekly requirements to 50% (vs 30% prior).
• The Q4 FSR was produced as of November 29, and recent falls in global rates do not invalidate the risks presented in the latest report.