Risk outlook
Conditions remain challenging, given increased geopolitical tensions and uncertainties over growth, inflation and interest rates.
Households and businesses
UK households and businesses continue to face higher borrowing costs, as interest rates are expected to remain higher for longer.
Bank resilience
The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected.
Non-bank finance
Risks from non-bank finance remain. These are being tackled in the UK and globally.
The Financial Policy Committee (FPC) works to ensure the UK has a stable financial system.
The UK’s financial system enables households and businesses to make payments, manage their savings, borrow money, and insure themselves against risks. A stable financial system is one that can absorb shocks, such as economic downturns, rather than make them worse.
The FPC works in two main ways. First, it seeks to identify weaknesses in the UK’s financial system. Second, it takes action so that the system is able to absorb negative shocks.

Non-technical summary
Conditions remain challenging, given increased geopolitical tensions and uncertainties over growth, inflation and interest rates.
The outlook for global economic growth remains subdued. A number of risks could weaken growth further, including persistent inflation, higher interest rates, and increased geopolitical tensions.
Currently, financial markets are not expecting further increases in Bank Rate; although interest rates will likely need to stay high for some time to make sure inflation continues to fall. Interest rates on are back to where they were before the global financial crisis (see Chart 1). These interest rates act as a benchmark for other types of borrowing. So, when rates on government bonds are higher, it often leads to higher interest rates faced by households and businesses.
The prices of houses and commercial property, such as offices and retail premises, are falling in many countries. However, the results from our 2022/23 stress test on major UK banks suggested that they would be resilient to a global recession, including severe stresses to property prices.
Chart 1: In advanced economies long-term bond yields have risen significantly
Yields on UK, US and German 30-year government bonds (between 2003-2023)
Footnotes
- Sources and notes: See Section 1 of the Financial Stability Report – December 2023.
UK households and businesses remain under pressure from higher borrowing costs, as interest rates are expected to remain higher for longer.
Many households continue to face pressures from recent increases in the cost of living, and as higher interest rates continue to feed through to their borrowing costs (see Chart 2). Around 45% of fixed-rate mortgage deals agreed before the end of December 2021 (when Bank Rate started increasing) are yet to renew.
Since July, however, household income has been a bit stronger than expected and new mortgage rates have fallen slightly. This means the share of households spending a high proportion of their income on mortgage payments is expected to be lower in future than we had previously thought (see Chart 3).
The overall share of households who are behind in paying their mortgages has risen slightly, but this remains low by historical standards. Some borrowers are taking action to limit their monthly repayments, for example through taking out longer-term loans, and UK banks are in a strong position to support customers facing difficulties. Approximately 90% of mortgage lenders have signed up to the Mortgage Charter, which aims to provide support to borrowers. As yet, the take-up by borrowers has been limited.
We expect UK businesses to be resilient overall to higher interest rates and weak growth. The most recent data, showing a strong growth in business earnings, supports that view. But some firms are likely to struggle more with borrowing costs. This includes firms in parts of the economy most exposed to a slowdown, or with a large amount of debt.
The number of firms going out of business has continued to rise, albeit from low levels. So far, these have mainly been small firms. Not all businesses with debt have felt the full impact of recent interest rates rises yet. But many businesses will not have to renew their fixed-rate loans or other debt before 2025. This will give firms more time to adjust their plans, to account for higher borrowing costs.
Both UK households and businesses have been broadly resilient to the impact of higher interest rates so far. We will continue to monitor developments.
Chart 2: Mortgage payments will increase for many households
Number of owner-occupier mortgages which will experience increases in monthly mortgage costs, for end-2024 and end-2026
Footnotes
- Source and notes: See Section 3.2 of the Financial Stability Report – December 2023.
Chart 3: The proportion of households with the highest mortgage repayments relative to their incomes decreased slightly in Q3, and is projected to increase by less than previously expected
The share of households with high cost of living adjusted DSRs
Footnotes
- Source and notes: See Section 3.2 of the Financial Stability Report – December 2023.
The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected.
Higher interest payments on loans mean some households and businesses may not be able to make their payments. This increases the risks that banks may face losses on their lending. The UK banking system has large to absorb any potential losses, or outflows of cash (see Chart 4). Because of these resources, UK banks are strong enough to support households and businesses, even if economic and financial conditions are worse than expected.
The amount of new lending by banks remains at low levels. This is mostly due to reduced demand for loans, given borrowing costs remain high. But as the economy has weakened, some households and businesses have also become riskier to lend to. This has led to a reduction in the availability of lending for certain types of borrowers. But banks do not appear to be cutting the availability of credit in a way that is out of line with changes in borrowers’ creditworthiness.
We set the UK countercyclical capital buffer (CCyB) rate each quarter. This provides banks with an additional ‘rainy day’ buffer they can use to withstand potential losses without restricting lending to the wider economy. The CCyB decision is based on the FPC’s assessment of economic and , and risks. In light of this assessment, the FPC decided to maintain the UK CCyB at its neutral setting (of 2%).
Chart 4: Both larger and smaller UK banks have robust capital ratios
Aggregate CET1 ratio of UK banks and building societies
Footnotes
- Source and notes: See Section 4 of the Financial Stability Report – December 2023.
Risks from non-bank finance remain. These are being tackled in the UK and globally.
Non-bank finance, also known as , is an important source of funding for UK firms alongside traditional bank loans. It has many benefits, such as allowing businesses to diversify their sources of finance. But, in part because of the way different markets are heavily connected, it also carries some risks. Vulnerabilities within market-based finance mean that shocks can be amplified. This could increase the cost and reduce the availability of loans to UK businesses and households.
The system of market-based finance is complex, with interconnections across the globe. We are working with other UK authorities and globally to reduce risks and build resilience.
To help us understand risks in the system as a whole, we have launched a system-wide exploratory scenario (‘SWES’) exercise. It is designed to help us better understand how banks and non-banks might act during very severe shocks in financial markets, and how their responses might interact to make things worse.