Five million more households yet to feel full rate hike burden, Bank of England warns

Published

2 years ago

December 6, 2023

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The Bank of England has said that UK households and businesses have been “resilient” in the face of rising interest rates – but repeated previous warnings that the full effect of higher interest rates was yet to come through.

Unveiling its latest Financial Stability Report – which is published twice yearly – the Bank said that household finances remained “stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments.”

The Bank, which raised its main policy rate 14 consecutive times between December 2021 and August this year to the current 15-year high of 5.25%, said that, because most mortgages taken out over recent years had been at a fixed interest rate, higher interest rates tended to have a lagged effect on households with a mortgage.

It said that around 55% of mortgage borrower accounts, around five million, had repriced since interest rates began to rise in late 2021.

But it warned: “Higher rates are expected to affect around five million [further] households by 2026.

“For the typical owner-occupier mortgagor rolling off a fixed rate between [April to June] 2023 and the end of 2026, their monthly mortgage repayments are projected to increase by around £240, or around 39%.

“As higher mortgage rates continue to flow through to UK households, the average debt servicing burden will increase.”

The report noted that, although average quoted mortgage rates had come down since the Bank’s last Financial Stability Report in July this year, they remained “higher than in the recent past”.

Andrew Bailey, the governor, emphasised that the UK banking sector remained well capitalised and had come through the Bank’s recent stress tests well.

He added: “If economic and financial conditions were to materially worsen for households and businesses, our banking sector has the capacity to support them.”

He said that there was evidence that net interest margins (the spread between what banks charge borrowers and pay depositors and a key driver of bank profits) had peaked.

The governor highlighted that, “thank goodness”, despite higher mortgage costs there had not been a big increase in home repossessions as in the past.

He added: “The financial system is much better placed to support borrowers. It’s a benefit of financial stability that the system is able to take these actions. And that’s a good thing, a very good thing.”

Mr Bailey said that, while UK households and businesses had remained resilient in the face of higher borrowing costs, the Bank had noticed an increase in arrears among home owners – both those living in their own homes with a mortgage and among buy-to-let landlords.

He said that the Bank was “very alert” to the issue of renters and particularly in view of the fact that, with home ownership in decline, renters now formed a larger proportion of the population and also tended to be at the lower end of the income scale.

He went on: “There is obviously a financial stability lens on this and it comes through the buy-to-let market.”

Asked about the way in which some borrowers were responding to higher mortgage rates Sarah Breedon, the deputy governor responsible for financial stability, said the Bank had noted an increased uptake, over time, of long-dated mortgages of up to 35 years and particularly among younger borrowers.

She added: “The more important thing is lending into retirement when people might not have the income [to cover mortgage payments]. We don’t judge it as a financial stability risk but it is something we are watching.”

Mr Bailey said that, among corporates, there was also evidence of some arrears building up and in particular among small and medium sized businesses.

But the report noted that the share of corporates at higher risk had fallen from its pandemic peak and pointed out that the bulk of UK corporate debt on fixed rates was due to mature in or after 2025.

The governor added: “We judge that the UK corporate sector as a whole has remained resilient.”

Further afield, Mr Bailey said that the overall risk environment remained challenging, singling out the Chinese economy – where many parts of the property sector remain under strain – as a particular risk for the global economy. He added that the “tragic events in the Middle East” had also contributed to geopolitical uncertainty.

The governor also sounded a warning on vulnerabilities in so-called ‘non-bank’ finance – services such as loans and credit which are not provided by banks but by other institutions, such as insurers, venture capital firms and currency exchanges.

In particular, he highlighted market-based finance – the provision of types of corporate credit, such as high-yield bonds and leveraged loans – where he said risks remained significant and, in some cases, had increased since the Bank’s last report in July.

He added: “There are now larger imbalances in the market in derivatives for US government debt – a key instrument in the financial system.”

The governor said that this could contribute to market volatility if hedge funds needed to unwind their positions in such instruments rapidly and noted that sharp movements in the prices of such assets could lead to wider dislocations as was shown during the LDI crisis which followed Kwasi Kwarteng’s mini-Budget in September last year.

The report also revealed that, since July, the Bank’s financial policy committee had been briefed on the continued adoption of artificial intelligence and machine learning in financial services and their potential financial stability implications.

Mr Bailey said: “I don’t pretend to be an expert on AI, because I am not, but when I speak to people who are they make the point [on] the complexity of the code behind it and the extent to which it is understood.

“It obviously has tremendous potential and particularly to improve productivity which would be a welcome thing.”

The governor also paid tribute to Alistair Darling, the former Chancellor, who died last week. He said Lord Darling was “wise, kind and had an absolutely wicked sense of humour.”

Business

Trump’s upbeat opinion of his meeting with Xi brushes over thornier issues

Published

51 mins ago

October 30, 2025

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Trump's upbeat opinion of his meeting with Xi brushes over thornier issues

For all the brinkmanship, for all the high stakes and attempts to wield maximum leverage, in the end, there was clear recognition from both the US and China that a degree of stabilisation was necessary.

The fact that some progress has been made on a relatively wide range of issues speaks to that.

But there are real questions about how deep that progress runs and how easily, in the hands of two leaders who staked both their reputations on being strong and unyielding, it could all come crashing down.

Follow the latest: Trump teases ‘large-scale’ energy deal

From the very outset, the differences in style could not have been more stark.

As the two posed for the introductory handshake, Donald Trump moved quickly to dominate the space – leaning in, doing all the talking, even quipping to the gathered reporters that Xi Jinping is “a very strong negotiator, and that isn’t good”.

That didn’t raise as much as an eyebrow from the Chinese leader.

Xi doesn’t like or respond well to unscripted moments; Trump, on the other hand, lives for them.

It might seem like a relatively inconsequential detail, but it speaks to how difficult it has been for two such opposing systems to see eye to eye, and how many stumbling blocks remained.

But it seems today, at least some of that was overcome.

Indeed, there appears to have been an agreement on key issues such as the movement of rare earth minerals, the purchase of soybeans, the reduction of tariffs and the crackdown on the trade of fentanyl and the chemicals used to make it.

There was further consensus to keep talking about the sale of high-end US chips and to work together to try to end the war in Ukraine.

None of this is insignificant, but Trump’s assessment of it all as a “12 out of 10” likely brushes over many much thornier issues.

The reality is that there is still a great gulf between them; there are many more barriers to trade than there were at the start of the year, there are still a raft of deep political and structural issues that divide them and the levels of distrust the trade war has left will take more than just one meeting to fix.

Disagreements, such as the future status of Taiwan, for example, weren’t even mentioned today.

There also doesn’t appear to be any guarantees baked in, and thus, there is nothing to prevent either party from reneging on what has been agreed and ramping pressure back up as soon as another issue arises.

And, given the characters involved, that feels all too likely.

Indeed, both sides, for different reasons, have found political advantage in the “maximum pressure” style brinkmanship we’ve seen in recent months.

Xi in particular cannot now be seen to cave in to Trump’s pressure and, economically at least, China doesn’t need to.

There was an agreement today that the two would meet again in the early part of next year; Trump plans to visit China in April.

This at least offers more diplomatic opportunity, but it would perhaps be naive to assume it will all be plain sailing until then.

Business

Donald Trump says tariffs will be cut after ‘amazing’ meeting with Xi Jinping

Published

12 hours ago

October 30, 2025

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Donald Trump says tariffs will be cut after 'amazing' meeting with Xi Jinping

Donald Trump has described crucial trade talks with Chinese President Xi Jinping as “amazing” – and says he will visit Beijing in April.

The leaders of the world’s two biggest economies met in South Korea as they tried to defuse growing tensions – with both countries imposing aggressive tariffs on exports since the president’s second term began.

Catch up on Trump-Xi meeting

Aboard Air Force One, Mr Trump confirmed tariffs on Chinese goods exported to the US will be reduced, which could prove much-needed relief to consumers.

It was also agreed that Beijing will work “hard” to stop fentanyl flowing into the US.

Semiconductor chips were another issue raised during their 100-minute meeting, but the president admitted certain issues weren’t discussed.

“On a scale of one to 10, the meeting with Xi was 12,” he told reporters en route back to the US.

Xi a ‘tough negotiator’, says Trump

The talks conclude a whirlwind visit across Asia – with Mr Trump saying he was “too busy” to see Kim Jong Un.

However, the president said he would be willing to fly back to see the North Korean leader, with a view to discussing denuclearisation.

Mr Trump had predicted negotiations with his Chinese counterpart would last for three or four hours – but their meeting ended in less than two.

The pair shook hands before the summit, with the US president quipping: “He’s a tough negotiator – and that’s not good!”

It marks the first face-to-face meeting between both men since 2019 – back in Mr Trump’s first term.

There were signs that Beijing had extended an olive branch to Washington ahead of the talks, with confirmation China will start buying US soybeans again.

American farmers have been feeling the pinch since China stopped making purchases earlier this year – not least because the country was their biggest overseas market.

Chinese stocks reached a 10-year high early on Thursday as investors digested their meeting, with the yuan rallying to a one-year high against the US dollar.

Analysis: A fascinating power play

Sky News Asia correspondent Helen-Ann Smith – who is in Busan where the talks took place – said it was fascinating to see the power play between both world leaders.

She said: “Trump moved quickly to dominate the space – leaning in, doing all the talking, even responding very briefly to a few thrown questions.

“That didn’t draw so much as an eyebrow raise from his counterpart, who was totally inscrutable. Xi does not like or respond well to unscripted moments, Trump lives for them.”

On Truth Social, Mr Trump had described the summit as a gathering of the “G2” – a nod to America and China’s status as the world’s two biggest economies.

While en route to see President Xi, he also revealed that the US “Department of War” has now been ordered to start testing nuclear weapons for the first time since 1992.

Business

Microsoft, Alphabet and Meta results overshadowed by growing fears of AI bubble

Published

13 hours ago

October 30, 2025

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Microsoft, Alphabet and Meta results overshadowed by growing fears of AI bubble

Some of the world’s biggest tech giants reported quarterly earnings on Wednesday – with a mixed bag of results as fears grow that a bubble is forming in artificial intelligence.

Microsoft revealed that its spending on AI infrastructure hit almost $35bn (£26.5bn) in the three months to the end of September, a sharp rise compared with the year before.

Despite revenue jumping 18% and net income rising 12%, shares plunged by close to 4% in after-hours trading, with investors concerned about the mounting costs of sustaining the boom.

Microsoft’s vice president of investor relations Jonathan Neilson said: “We continue to see demand which exceeds the capacity we have available.

“Our capital expenditure strategy remains unchanged in that we build against the demand signal we’re seeing.”

Big Tech is facing increasing pressure to show returns on the massive AI investments they’re making, against a backdrop of soaring valuations and limited evidence of productivity gains.

Microsoft became the world’s second most valuable company this week thanks to its 27% stake in OpenAI, the creator of ChatGPT.

Its market capitalisation surged beyond $4trn (£3trn) at one point, but that psychologically significant threshold is now in doubt because of recent selloffs.

Alphabet makes history

Last night’s results weren’t all doom and gloom – with shares in Google’s parent company surging by 6% in after-hours trading.

Alphabet has also set out aggressive spending ambitions, but placated investors thanks to an impressive set of results that surpassed analysts’ expectations.

Total revenue for the quarter stood at a staggering $102.35bn (£77bn), with the search giant’s advertising unit remaining robust despite growing competition.

But concerns linger that Alphabet’s dominance in search could be undermined by AI startups, with OpenAI recently unveiling a browser designed to rival Google Chrome.

Hargreaves Lansdown’s senior equity analyst Matt Britzman shrugged off this threat – and believes the company is “gearing up for long-term AI leadership”.

He said: “Alphabet just delivered its first-ever $100bn quarter, silencing the doubters with standout performances in both Search and Cloud.

“AI Overviews and AI Mode are clearly resonating with users, helping to ease fears that Google’s core search business is under threat from generative AI.

“With ChatGPT’s recent browser demo falling short of a game-changer, Google looks well-placed to put up a strong defence as gatekeeper to the internet.”

Meta faces a mauling

Meta – the parent company of Facebook, Instagram, and WhatsApp – saw its shares tumble by as much as 10% in after-hours trading.

Mark Zuckerberg’s tech empire anticipates “notably larger” capital expenses next year as it ramps up investments in AI and goes on a hiring spree for top talent.

Net income in the third quarter stood at $2.7bn (£2bn) and suffered an eye-watering $16bn (£12bn) hit because of Donald Trump’s “Big Beautiful Bill”.

Meta was late to the party on AI but has now doubled down on this still-nascent technology – setting an ambition to achieve superintelligence, a milestone where machines could theoretically outthink humans.

The social networking giant continues to benefit from its massive user base, and expects fourth-quarter revenues of up to $59bn (£44bn).