Can we dodge a debt disaster?

The Financial Stability Report - June 2024, published by the Bank of England, provides a comprehensive analysis of the current state of the UK’s financial system. It highlights the key risks and vulnerabilities facing the financial sector and evaluates the resilience of financial institutions.

The ongoing elevation of interest rates continues to exert significant pressure on household disposable income. Higher borrowing costs have led to increased mortgage payments and credit expenses, reducing the amount of income available for other expenditures. This financial strain is particularly pronounced for those nearing refinancing periods. As a result, consumer spending is likely to contract, potentially slowing economic growth and affecting overall financial well-being.

This effect will intensify over the coming years as fixed terms at lower rates come to an end. Corporates are also affected,

Also of interest are details regarding the “2024 desk-based stress test”. The stress test models base rates set to 0.1% and 9%. However, there is a clear context given to these simulated rates.

Planning for the future in the current financial climate necessitates a thorough understanding of the interest rate ranges outlined in the Bank of England’s stress test. With base rates modelled at both 0.1% and 9%, businesses must prepare for a wide spectrum of economic scenarios. By incorporating these stress test scenarios into their strategic planning, companies can evaluate their resilience to severe but plausible financial shocks. This approach allows businesses to identify vulnerabilities and develop contingency plans to safeguard their operations.

So questions we are thinking about?

How should businesses adapt their financial strategies in response to ongoing elevated interest rates? What steps can companies take to mitigate the impact of increased borrowing costs on their operations? Should businesses consider restructuring their debt to more favourable terms, or is it wiser to focus on cutting operational costs? How can companies balance the need for investment and growth with the necessity of maintaining financial stability in a high-interest-rate environment?

Bank of England, 2024. Financial Stability Report June 2024.URL.

TPEX offers future imagining and tenth person consultancy for decision makers looking to consider the future, before opportunities are missed. We offer online and in-person consultancy to help your business make informed decisions about the future.

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