On 13 December 2021, the Bank of England (BoE) published its Financial Stability Report for December 2021.
The Financial Stability Report sets out the Financial Policy Committee’s (FPC) view of the outlook for UK financial stability, including its assessment of the resilience of the UK financial system and the main risks to UK financial stability, and the action it is taking to remove or reduce those risks. It also reports on the activities of the FPC over the reporting period and on the extent to which the FPC’s previous policy actions have succeeded in meeting the Committee’s objectives.
Key messages in the Financial Stability Report include:
- The FPC continues to judge that the UK banking system remains resilient to outcomes for the economy that are much more severe than the Monetary Policy Committee’s (MPC’s) central forecast. This judgement is supported by the final results of the 2021 solvency stress test.
- The FPC remains vigilant to debt vulnerabilities in the economy that could amplify risks to financial stability.
- So far, UK households’ finances have remained resilient as COVID-related support measures – such as the furlough scheme and the ability to take a payment deferral on mortgages and consumer credit – have ended.
- The FPC judges that vulnerabilities that can amplify economic shocks are at a standard level overall, as was the case just before the pandemic. This would be consistent with the UK countercyclical capital buffer (CCyB) rate returning to the region of 2%. The FPC is therefore increasing the UK CCyB rate from 0% to 1%. This rate will come into effect from 13 December 2022 in line with the usual 12-month implementation period.
- If the UK economic recovery proceeds broadly in line with the MPC’s central projections in the November Monetary Policy Report, and absent a material change in the outlook for UK financial stability, the FPC would expect to increase the rate further to 2% in 2022 Q2. That subsequent increase would be expected to take effect after the usual 12-month implementation period.
Alongside the Financial Stability Report the BoE has also published: