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BOE: 1 Percentage Point Higher Bank Rate Could Reduce Consumption By 0.2% 
By David Robinson
     LONDON (MNI) - UK consumers are more optimistic about their personal
finances than the economy as a whole, and a recent rate rise has had little
effect on their ability to pay their debts, Bank of England analysis of a
household finances survey shows.
     The BOE published the results of the NMG biannual household survey.
Following are key points:
     --There was limited impact on borrower resilience and credit availability
from the Monetary Policy Committee's 25-basis-point increase in Bank Rate to
0.75% in August, which passed through to higher interest rates for most
borrowers on floating rates.
     The BOE analysis looked at the "cash flow channel," the impact of rate
changes on interest paid and received.
     --The impact on consumption of even a string of rate hikes, raising Bank
Rate by 100 basis points, looks likely to be pretty small.
     "New estimates suggest a 1 percentage point increase in Bank Rate could
reduce consumption by 0.2% through this channel, a smaller effect than
previously estimated," the BOE economists noted.
     --UK consumers are being cushioned from a rise in the key policy rate by a
combination of rising nominal income and the ability to switch from their
current mortgages onto lower rate ones.
     BOE data has highlighted how, as 2- and 3-year fixed-interest mortgages
dominate the market, borrowers are able to refinance onto lower mortgage rates,
as yield curves have flattened in part due to a weaker economic outlook.
     --The NMG survey, commissioned by the BOE, highlighted how household
expectations for their own finances have become increasingly detached from views
about the economy as a whole since the June 2016 EU referendum.
     Gloom about the economic outlook is not reflected in gloom about household
finances, with consumers relatively upbeat about the latter.
     The survey found that more households had increased nominal spending than
had reduced it over the past year and on balance expected to raise it further
over the next 12 months.
     --The main data in the survey date back, however, to September and don't
reflect the latest, intensified bout of economic uncertainty.
     The latest GfK survey, out Friday, showed consumer confidence fell to a
five-year low this month but that survey also showed consumers were still
relatively more optimistic about their personal finances than the economy as a
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,M$$BE$]