Bank of England says ‘lessons must be learned’ from pensions crisis
The Bank of England said “lessons must be learned” from the pensions crisis that triggered an unprecedented intervention in the UK gilt markets, and stressed the need for action to mitigate similar risks in other parts of the financial sector.
“While it might not be reasonable to expect market participants to insure against all extreme market outcomes, it is important that lessons are learned from this episode and appropriate levels of resilience ensured,” the BoE’s financial policy committee said in its quarterly update on Wednesday.
The bank also warned that UK households and companies were under strain as high interest rates, high energy costs and the cost of living crisis combined to make it harder for them to pay bills and loans. Mortgages were a particular concern, with the bank warning that household debt levels could hit historic highs.
The pensions’ crisis comes against the backdrop of a global economic outlook that the BoE said had “continued to deteriorate significantly” since its July update, with soaring interest rates and heightened geopolitical tensions.
The bank also raised concerns about the pressures facing UK households and businesses. With 20 per cent of fixed rate mortgages due for refinancing in the next year, a historic percentage of households are expected to have ‘high’ levels of mortgage debt by 2023, at a time when they are facing soaring energy prices and high inflation, making them “more vulnerable to shocks”.
Companies, in particular small and medium-sized enterprises, are also facing higher interest rates and pressures on their costs — although their debt levels are not yet near financial crisis peaks, putting them in a better position overall.
The BoE stressed that the country’s banks had “considerable capacity to support lending” and would be able to withstand “the impact of severe economic outcomes”, such as higher levels of loan defaults.
This story originally appeared on: Financial Times - Author:Laura Noonan
