The risk environment has remained broadly unchanged since Q1 2024, data from the Bank of England’s Financial Stability Report for June has revealed.
According to the report, despite this level of stability, the price of many assets such as shares and bonds remained high relative to historical norms, and some have continued to rise.
This suggests that investors in financial markets continue to expect the economy to recover and inflation to fall.
In addition, with continued strong income growth and low unemployment, the aggregate amount of debt held by UK households relative to their income has fallen since Q1.
However, the report revealed that the share of households spending a high proportion of their income on mortgage payments is still expected to increase slightly over the next two years.
But the overall share of households who were behind in paying their mortgages remained low by historical standards.
Bank of England also said that most businesses would to continue to be resilient to the economic outlook, including high interest rates, while some firms were likely to struggle with higher borrowing costs in the coming years.
The report revealed that firms with a large amount of market-based debt which still needs to be refinanced, and where a high proportion of income is being spent on repayments, are likely to come under the most pressure.
Richard Pike, chief sales and marketing officer at Phoebus, said: “The Bank of England’s Financial Stability Report appears to be very good news for the UK economy.
“The Financial Policy Committee has found risks to the UK financial system to be mostly unchanged since Q1.
“Households and businesses have remained resilient to the new normal of higher interest rates, and the Committee considers the UK banking system sturdy enough to support households and businesses, even if the economy slides unexpectedly.
“However, the assessment comes with a double sting in the tail which could stall rejuvenation in the property market.”
He continued: “Geopolitical threats remain high. Middle East issues, Russia’s ongoing war in Ukraine and tension between the US and China all risk financial stability in the UK.
“There is also concern around the continuing rise of asset prices including credit markets, and the accompanying risk of a sharp correction.
“This could make borrowing more difficult and expensive for UK households and businesses, creating further challenges for the housing market if interest rates remain higher for longer than expected.
“Many households continue to feel the pain of higher living costs and interest rates, and this could especially stifle renters still holding their breath to get on the property ladder as first-time buyers.”
