The Bank of England has taken measures to control inflation by raising its main interest rate from 0.1% in December 2021 to a 15-year high of 5.25%. Another rate hike, expected later this week, is anticipated to bring the rate to 5.5%. However, this move comes with consequences for the British banking sector.
According to Bank of England Deputy Governor Sam Woods, the banking sector is experiencing an increase in impairments due to inflation and the subsequent interest rate hikes. Woods, who is also the CEO of the Prudential Regulation Authority, stated that while the economy has remained resilient, regulators are closely monitoring potential stresses within the banking sector.
Despite the challenges, Woods reassured that the situation should not be a cause for alarm. He explained that although there is a pickup in impairments across the banking sector, the numbers are relatively low compared to previous years. The Prudential Regulation Authority estimates that just over 1% of mortgages are in arrears, which is similar to figures seen in 2018. During the financial crisis, this number reached as high as 3.6%.
Woods emphasized that regulators are paying close attention to the situation and will continue to monitor any potential risks. The banking sector’s performance thus far during the COVID-19 pandemic has been better than expected, thanks to significant fiscal and monetary support. However, the recent increase in impairments highlights the importance of staying vigilant during this period of rising inflation and interest rates.
– Bank of England Deputy Governor Sam Woods
– Prudential Regulation Authority