Bank of England says Britain is coping with higher interest rates
interest rates over the past year and a half, but it will take time for the full impact to feed through, the Bank of England said on Wednesday. The Bank last month raised rates to 5%, up from 0.1% at the end of 2021, raising concerns about a hit to households, businesses and the broader financial sector that could push the economy into a recession.
But in a half-yearly assessment of the health of the financial system, the BoE said there was no reason for alarm. «The UK economy and financial system has so far been resilient to interest rate risk,» BoE Governor Andrew Bailey told a press conference.
«We will continue to monitor credit conditions for any signs of tightening which are not explained satisfactorily by changes in the macroeconomic outlook.» The proportion of households with heavy mortgage burdens was rising. But even considering the higher cost of living — with inflation at 8.7% in May — it was likely to remain below the peak seen in 2007.
On Tuesday, average interest rates for new two-year fixed-rate mortgages — the most common form of housing finance — rose above their peak following last September's mini-budget to a 15-year high, according to data provider Moneyfacts. Britain's finance industry estimates 800,000 households will need to refinance onto more expensive mortgages in the second half of 2023, and a further 1.6 million in 2024.
The Bank said the typical mortgage holder refinancing later this year would pay an extra 220 pounds ($285) a month, and that, by the end of 2026, nearly 1 million households would be paying at least 500 pounds a month more. The number of households spending more than 70% of their income on mortgage payments, after tax and other essential spending, is on course to rise to
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