- G10 Markets
- Fixed Income
- Foreign Exchange
- Emerging Markets
- MNI Research
- Global Macro
- Political Risk
- About Us
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
- G10 Markets
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
Real-time insight of oil & gas markets
Reporting on key macro data at the time of release.
- MNI Research
- About Us
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.Free Access
MNI: UK Financial Conditions Significantly Tighter - BOE FSR
The Bank of England Financial Policy Committee judged that financial conditions had tightened significantly and household finances were going to come under increasing strain as rises in interest rates feed through with a lag.
The Monetary Policy Committee, which meets this week, uses the Bank's Financial Conditions Index to help assess the degree of tightening required. The FPC's assessment was that UK banks were resilient and would be able to continue to provide financing but that pressures on households are mounting.
The Bank's Financial Stability Report looked in depth at how mortgage rates would increase as interest rate hikes feed through, with the bulk of borrowers on short-term fixed mortgages. The average mortgage is set to rise by GBP200 per month in 2023, and GBP250 for those refinancing on fixed rates, on the BOE's calculations.
This would push average payments up for those remortgaging from GBP750 per month to GBP1,000, equivalent to 17% of pre-tax income. Nevertheless, the Bank stressed that household were starting from relatively low debt levels compared to pre-Global Financial Crisis. and the proportion of households with high debt services rations was only expected to rise to 2.4% from 1.6%.
The FPC said that UK business were also "broadly resilient" but that they were under increased pressure from economic and financial conditions and that these pressures would increase through 2023.
HIGHER LDI BUFFERS
The FPC looked closely at Liability Driven Investment funds, which ran into difficulties following the spike in gilt yields in late September as they had to sell gilts to meet margin calls, creating a downward spiral in the market that led to the BOE buying longer dated and index linked gilts.
The Bank revealed the LDI 's had faced margin calls in total of around GBP70 billion and the pooled funds, which had to request cash from pension fund trustees, had often faced delays of up to two weeks to get that cash.
LDI buffers have been raised to 300-400 basis points from 150bps previously, with the FPC urging LDIs to maintain these and it welcomed the moves by the Irish and Luxembourg authorities to pressure them to do so.
The FPC said that it would undertake extensive consultative work next year on the resilience and regulation of non-bank financial institutions and would look at what the sustainable level of LDI buffers should be.
The FPC also announced that it was recommending that bank Counter Cyclical Capital Buffer (CCyB) be left at 2% (effective July 2023), although it can be cut if conditions deteriorate.
Sign up now for free access to this content.
Please enter your details below and select your areas of interest.
MNI is the leading providerof intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.