MNI: BOE - Challenging Risk Environment; Households Resilient

The Bank of England in its Financial Stability Report said that the financial risk environment remained challenging but that the households had proven resilient so far in the higher rate world.

The BOE report was based on data up until Nov 29 and since then market rate expectations have fallen sharply, highlighting the volatility in asset pricing. On the BOE's projections just over half of UK mortgagees have been re-priced since the start of the rate tightening cycle in late 2021,  with monthly mortgage changes projected to rise by GBP240 by end 2026, down from GBP250 in the July FSR.

The figures, however, are based on market rate paths and would be lower still if updated to current prices.

The Bank said that UK corporates' ability to service debts had improved due to higher earnings growth and households at risk from high debt costs had declined somewh

The BOE said some risky asset valuations appeared stretched in light of rate volatility and the Bank noted that hedge funds net short positions in US Treasuries were at their highest level since the dash-for-cash seen back in 2020 when the Covid shock hit.

The BoE maintained the CCyB at 2%, citing banking resilience and capital/liquidity positions.