Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Bank of England warns higher rates and inflation to squeeze households in 2023

Bank of England warns higher rates and inflation to squeeze households in 2023

The Bank of England warned on Tuesday about "significant pressure" on households and businesses due to higher inflation and borrowing costs, but said they were more resilient than before the global financial crisis.
The BoE had previously flagged that Britain was entering a lengthy recession and, with inflation at a 41-year high and a sharp rise in interest rates over the past year, government forecasters have predicted a record squeeze on living standards.

"Falling real incomes, increases in mortgage costs and higher unemployment will place significant pressure on household finances," the BoE said in its half-yearly Financial Stability Report.

Around 4 million households are likely to face higher mortgage payments in 2023, with the average monthly mortgage payment rising to 1,000 pounds ($1,228) from 750 pounds, equivalent to about 17% of pre-tax income.

But 2.4% of households would find themselves with mortgage payments that they would find hard to afford, the BoE's Financial Policy Committee (FPC) predicted.

Compared with during the 2008 global financial crisis and the recession in the early 1990s, this was a smaller proportion, in part because more households have fixed-rate mortgages and lending regulations are stricter than in earlier decades.

"The FPC continues to judge that banks are resilient, even if conditions were to be worse than forecast," BoE Governor Andrew Bailey wrote in a letter to finance minister Jeremy Hunt accompanying the report.

The FPC also announced it would conduct its first "stress test" of the non-banking sector following a near meltdown in pension funds in September.

SLOWING HOUSING MARKET

Britain's housing market is already starting to slow in the face of higher interest rates and an incipient recession. The BoE has raised rates to 3% from 0.1% a year ago, and economists polled by Reuters expect it to raise rates to 3.5% on Thursday.

Mortgage lender Halifax reported the biggest monthly house price fall since 2008 in November, and trade body UK Finance forecast on Monday that lending for house purchase would fall by almost a quarter next year.

Small landlords who had bought investment properties to rent out - who own 8% of Britain's homes - were likely to be harder hit than homeowners by rising rates, as they often had interest-only mortgages, the BoE said.

Landlords would need to raise rents by around 20% to recoup higher interest costs - which in turn might cause their tenants to default on other debt or cut consumption sharply, amplifying the economic downturn. Others might sell up, the BoE said.

Last month the government's Office for Budget Responsibility forecast that house prices would fall 9% by late 2024.

The BoE also warned of an increased danger of global financial risks crystallising.

"Sharp increases in prices, including of energy, tighter financial conditions and the worsening outlook for growth and unemployment will continue to weigh on debt affordability for households, businesses and governments globally," the BoE said.

The central bank warned in particular of the dangers of investing in crypto assets, which it said would benefit from "enhanced regulatory and law enforcement frameworks".

"Financial institutions and investors should take an especially cautious and prudent approach to any adoption of these assets until the necessary regulatory frameworks are in place," it said.

The BoE judged the risk of a sharp loss of investor appetite for British assets such as government bonds as "low", as turmoil had eased since September's mini-budget from Liz Truss's short-lived government.

"Perceptions of the UK macroeconomic policy framework can have a material impact on UK financial conditions," it said.

($1 = 0.8141 pounds)
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Bruce Willis Relocated Due to Advanced Dementia
French and Korean Nuclear Majors Clash As EU Launches Foreign Subsidy Probe
EU Stands Firm on Digital Rules as Trump Warns of Retaliation
Getting Ready for the 3rd Time in Its History, Germany Approves Voluntary Military Service for Teenagers
Denmark Confronts U.S. Diplomat Over Covert Trump-Linked Influence in Greenland
Trump Demands RICO Charges Against George Soros and Son for Funding Violent Protests
Taylor Swift Announces Engagement to NFL Star Travis Kelce
France May Need IMF Bailout, Warns Finance Minister
After the Shock of Defeat, Iranians Yearn for Change
Ukraine Finally Allows Young Men Aged Eighteen to Twenty-Two to Leave the Country
The Porn Remains, Privacy Disappears: How Britain Broke the Internet in Ten Days
YouTube Altered Content by Artificial Intelligence – Without Permission
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
German Chancellor Friedrich Merz: “The Current Welfare State Can No Longer Be Financed”
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Dutch Foreign Minister Resigns Amid Deadlock Over Israel Sanctions
Trump and Allies Send Messages of Support to Ukraine on Independence Day Amid Ongoing Conflict
China Reels as Telegram Chat Group Shares Hidden-Camera Footage of Women and Children
MotoGP Cameraman Narrowly Avoids Pedro Acosta Crash at Hungarian Grand Prix
Wizz Air passengers screamed as storm-battered flight diverts to Bologna
European postal services halt U.S. deliveries after Trump imposes new tariffs
Urban explorer finds abandoned luxury restaurant left to decay
Fidesz leader labels Péter Magyar a ‘bluffer’ amid escalating political spat
French rope park operator arrested for denying entry to Israeli children
Újpest thrashes Zalaegerszeg 4-1 to secure first win in five matches
Profit-margin cap costs retailers 13 billion forints a month, warns trade group
Curiosity rover finds coral-like rock on Mars hinting at watery past
U.S. green policy rollback drives investors to Europe’s sustainable finance market
Special funerals rise in Hungary: boat, aerial and forest burials gain popularity
Hungary’s Kiskunság region turning into semi-desert after extreme drought
Kopasz Bálint wins world kayak 1000 m title in Milan, making him triple world champion
Budapest’s Keleti railway station to close for four weeks for track overhaul
Balaton could be unfit for swimming by 2035 and dry by 2050, scientists warn
Leaked guidelines show Meta’s AI allowed flirty and racist interactions with children
Filming of ‘Emily in Paris’ halted after assistant director dies on set
Filipino guest workers sue after Hungary moves to deport them for pregnancy
Ukraine Declares De Facto War on Hungary and Slovakia with Terror Drone Strikes on Their Gas Lifeline
A monster hit and a billion-dollar toy empire
Animated K-pop Musical ‘KPop Demon Hunters’ Becomes Netflix’s Most-Watched Original Animated Film
Canada: Nurse Suspended and Fined 93 Thousand Dollars After Stating the World’s Most Well-Known Fact Since the Creation of Adam and Eve, That There Are Only Two Genders
Elon Musk tweeted, “Europe is dying”
Far-Right Activist Convicted of Incitement Changes Gender and Demands: "Send Me to a Women’s Prison" | The Storm in Germany
Hungary Criticizes Ukraine: "Violating Our Sovereignty"
Will this be the first country to return to negative interest rates?
U.S. Treasury Secretary Whitney Bessent Backs Stablecoins to Boost Treasury Demand
Spain to Declare Disaster Zones After Massive Wildfires
Three-Minute Battery Swap Touted as Future of EVs
Beijing Military Parade to Showcase Weapons Advances
×