The Bank of England, Financial Policy Committee (FPC), has posted its financial policy statement, which is a bit gloomy. The FPC says, “Inflation, higher interest rates, and geopolitical tensions make the current risk outlook challenging.”
The overall outlook for economic growth remains muted, and if inflation lingers, interest rates may need to be higher for longer.
At the same time, the higher interest rates have “not yet passed through to all household and business borrowers,” which means more pain is on the way.
While larger businesses may be more resilient, the FPC reports that smaller businesses and those with more debt are likely to struggle more. The FPC says that business insolvencies continue to rise.
While economic conditions are worse than anticipated, the banking sector “remains strong” and is able to absorb any shock to the system.
While not directly mentioned, the war in Israel will not help the situation as tensions rise across the Middle East, which could impact energy prices.
The complete report is available here.