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While the overall global environment for financial risk remained
challenging - and there were concerns about specific areas such
as private equity - Britain's financial system remained well
protected against future shocks, the BoE said.
"So far UK borrowers have been resilient to the impact of higher
interest rates," the BoE's Financial Policy Committee said in a
quarterly update.
Last week the BoE kept its main interest rate at 5.25%, its
highest in nearly 16 years, but said inflation was heading in
the right direction for a rate cut. Financial markets on Tuesday
saw a nearly two in three chance of a first quarter-point rate
cut by June and a move is fully priced in by August.
The BoE said just over half of households with mortgages had
seen debt payments rise since it started raising rates in
December 2021. Mortgage debt service ratios were forecast to
rise from 7.0% in the third quarter of 2023 to 8.4% by the end
of 2026, slightly below a projection of 8.8% in December.
The proportion of households with high debt costs relative to
their cost of living was seen rising marginally to 1.6% by the
end of this year from 1.4%, well below the peak of 3.4% it
reached after the global financial crisis.
However, the BoE noted a rising trend of mortgages with 30-year
terms - which now accounted for almost half of new mortgages -
and that some very low-income households were struggling with
basics such as food, even if they were not in debt that posed
broader financial stability risks.
Britain's economy entered a shallow recession in the second half
of 2023, although more recent business surveys and data suggest
it has returned to growth and will eke out a very modest
expansion in 2024.
Corporate insolvencies in England and Wales in February were 17%
higher than a year earlier and 50% above their level four years
ago, just before the COVID-19 pandemic struck Britain.
The BoE said the weakness was concentrated among very small
businesses.
"Corporates remained broadly resilient to high interest rates
and weak growth," it said.
(Reporting by David Milliken and Huw Jones)
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