In August, the Bank of England raised interest rates for the 14th consecutive time.
Alejandro Spatari | Moment | fake images
According to Bank of England Deputy Governor Sam Woods, the British banking sector is experiencing increasing impairments amid rising inflation and subsequent interest rate increases.
In a bid to control rampant inflation, the central bank has raised its main interest rate from 0.1% in December 2021 to a 15-year high of 5.25% currently, with the market expecting another hike at the end of this week up to 5.5%.
The economy has proven surprisingly resilient, but Woods, also chief executive of the Prudential Regulation Authority, said regulators are closely monitoring potential strains in the banking sector.
“So far, things have worked out a little better than a lot of people expected and, particularly through Covid, of course, the enormous fiscal and monetary support actually protected the banking system from credit losses,” Woods told CNBC on Tuesday.
“But as we see it now, we’re actually seeing an uptick in impairments across the banking sector. It’s not something people should be alarmed about.”
The PRA estimates that just over 1% of mortgages are in arrears. Woods noted that that figure was similarly high in 2018, and during the financial crisis it was 3.6%.
“So it’s going up, but from a very low base, and we’re watching it closely,” he added.
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