By David Milligan and Huw Jones
LONDON (Reuters) – The UK economy has proved resilient to rate rises over the past year and a half, but the Bank of England said on Wednesday that the full impact of the hikes would take time to be felt.
Last month, the Bank raised interest rates from 0.1% to 5% by the end of 2021, raising fears of a severe hit to households, businesses and the wider financial sector that could push the economy into recession.
But in a mid-year review of the health of the financial system, Britain’s central bank said there was no cause for alarm.
“The UK economy and the financial system have so far faced interest rate risk,” Bank of England Governor Andrew Bailey told a news conference.
“We will continue to monitor credit conditions for signs of tightening that are not satisfactorily explained by changes in the macroeconomic outlook.”
The proportion of highly indebted households is rising, but even taking into account cost-of-living increases — inflation of 8.9% in May — it remains below the peak recorded in 2007.
British banks are less exposed than households to the adverse effects of high interest rates, particularly as the corporate sector remains “broadly resilient” compared to financial institutions in other countries.
“However, higher funding costs may put pressure on some small or highly leveraged firms,” he added.
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