LONDON — The Bank of England on Wednesday warned that although household finances are faring better than expected, higher borrowing costs have yet to fully feed through to the economy.
In its half-yearly Financial Stability Report, the central bank noted that “the overall risk environment remains challenging” amid a sluggish domestic economy, further risks to global growth and inflation and heightened geopolitical tensions.
The Bank of England hiked interest rates by more than 500 basis points between December 2021 and August 2023, taking its main rate to a 15-year high in a bid to combat soaring inflation. Its Financial Policy Committee highlighted in the report that long-term interest rates in both the U.K. and the U.S. are now around their pre-2008 levels.“The full effect of higher interest rates has yet to come through, posing ongoing challenges to households, businesses and governments, which could be amplified by vulnerabilities in the system of market-based finance,” the FPC said.“So far, and while the FPC continues to monitor developments, U.K. borrowers and the financial system have been broadly resilient to the impact of higher and more volatile interest rates.”