Bank of England warns that economic outlook has ‘deteriorated materially’
The outlook for the UK and global economy has “deteriorated materially” due to inflationary pressures largely stoked by Russia’s invasion of Ukraine, putting extra strain on British household and business finances, the Bank of England (BoE) has warned.
The worsening economic outlook has caused volatility in global markets in recent months with more turbulence likely, the Bank said in its quarterly health check on the UK’s financial system.
UK banks will need to set aside more cash to absorb shocks in the markets from next year but are in good shape to provide lending support to households and businesses, it added.
“The economic outlook for the UK and globally has deteriorated materially,” the BoE said in its latest Financial Stability Report. “Prices of essential goods such as food and energy have risen sharply in the UK and globally, and the outlook for growth has worsened. This is largely a result of Russia’s illegal invasion of Ukraine.
“These higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.”
BoE officials have ordered UK banks to set aside 2% of their capital – about £22bn – as part of the countercyclical capital buffer from this time next year.
The buffer – introduced in the wake of the financial crisis to ensure banks have a rainy day fund – was slashed to zero during the pandemic, releasing billions of pounds to help businesses and households. Officials stressed that they are ready to release the cash again, especially if the economy performs worse than currently expected.
However, the
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