The BoE’s Financial Policy Committee (FPC) seeks to ensure that the UK financial system is prepared for and resilient to the wide range of risks it could face. The BoE has published the summary and record of the FPC’s latest meeting (held on 16 June 2022), together with the Financial Stability Report for July 2022.
The report notes that:
- the economic outlook for the UK and globally has deteriorated materially;
- the outlook is subject to considerable uncertainty and there are a number of downside risks that could adversely affect UK financial stability;
- reflecting these developments in the economic outlook, global financial markets have been volatile in recent months;
- in the event of further shocks, impaired liquidity conditions could be amplified by the vulnerabilities in the system of market-based finance previously identified by the FPC;
- FPC considers that UK banks have considerable capacity to support lending to households and businesses even with the deterioration in the economic outlook;
- although downside risks will present headwinds, FPC considers that UK banks have capacity to weather the impact of severe economic outcomes;
- aggregate household debt relative to income has remained broadly flat in recent quarters, and there is little evidence of a deterioration in lending standards.
- the rise in living costs and interest rates will put increased pressure on UK household finances in coming months;
- debt servicing remains affordable for most UK businesses; and
- major UK banks are resilient to domestic debt vulnerabilities.