LONDON, Dec 6 (Reuters) – Borrowing costs in Britain will have to remain at current levels for some time and the Bank of England (BoE) is vigilant about the financial stability risks that could arise, said declared its governor Andrew Bailey on Wednesday.
“Rates will likely need to remain at these levels for a prolonged period to sustainably bring inflation back to its target level,” he said at a press conference after the BoE published its latest report on inflation. financial stability.
“The effect of rising interest rates is not yet fully perceptible. This is why we remain vigilant regarding financial stability risks that could arise,” he added.
Andrew Bailey also notes that the inflation outlook remains uncertain.
In its half-yearly financial stability report, published earlier today, the BoE said stronger-than-expected wage and income growth since the July report had reduced some of the inflationary pressure on British households.
“Nevertheless, household finances remain strained by the rising cost of living and rising interest rates,” writes the BoE’s financial policy committee.
Businesses have also generally resisted rising rates and weak growth, “but the full impact of rising financing costs has not yet been passed on to all borrowers,” it also said.
The British central bank, concerned about the long-term impact of last year’s surge in inflation, raised its key rates 14 times between December 2021 and August 2023, taking its main rate to a high in 15 years, at 5.25%, before opting for the status quo.
BoE officials note signs of a slowdown in the economy but say they are not currently considering a cut in the discount rate due to indicators showing the strong persistence of inflationary pressures.
The BoE has also ordered banks to anticipate potential difficulties in the way they finance themselves due to a shift from current account deposits to vehicles offering high interest rates, which costs banks money.
“The British banking system is well capitalized and has high levels of liquidity,” writes the BoE, however, adding that net interest margins have probably reached a peak but that profitability should remain solid. (Reporting William Schomberg, Huw Jones and Suban Abdulla; written by Andy Bruce; French version Claude Chendjou, edited by Blandine Hénault)
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