On 12 July 2023, the Bank of England (BoE) published the Financial Stability Report.

The report sets out the Financial Policy Committee’s (FPC’s) 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, as well as 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 FPC’s objectives.

Some of the points highlighted in the report include:

  • In recent months, interest rates have continued to increase as central banks around the world act to tackle inflation. Since December 2021, the Bank of England interest rate has increased from 0.1% to 5%. Returning inflation sustainably to the 2% target will support the FPC’s objective of protecting and enhancing UK financial stability.
  • Higher interest payments on loans mean some borrowers may struggle with their repayments, which increases the risks faced by banks. However, UK banks are resilient and are strong enough to support their customers
  • The FPC has maintained the UK countercyclical capital buffer at 2%. This ‘rainy day’ buffer can be used to make sure banks can withstand potential losses without restricting lending to the wider economy. 
  • Many UK firms rely on financial markets to raise funding, and disruption to these markets can increase the cost of borrowing for households and businesses more generally. It is therefore important for UK financial stability that these markets function well, even under stress. The FPC is continuing to help develop global standards to limit vulnerabilities in the non-bank participants in these markets.