The United Kingdom may witness worsening economic outlook and persistent high inflation, the Bank of England has raised alarm.
The Bank of England has also told lenders to prepare for a “deteriorated economic outlook”. The Bank said the outlook for the UK economy is “very uncertain”.
The development, according to the bank is largely caused by the lingering conflict between Russia and Ukraine.
The bank said Russian invasion of Ukraine has caused more disruption to global energy and food markets. In order to avert the consequences of the instability in the economy, the Bank said it had been forced to increase interest rates so it could tackle soaring inflation.
The bank however acknowledged that while the policy might stable the soaring inflation, it is likely to make it harder for businesses and households to repay their debts.
This, according to the bank is the reason for its directive to all lenders to ramp up capital buffers to ensure they can weather the storm.
“The economic outlook for the UK and globally has deteriorated materially,” the Bank said as it published its latest Financial Stability Report, largely blaming the impact of the war in Ukraine.
“The Russian invasion of Ukraine could cause more disruption to global energy and food markets,” it said.
“Given this, we expect households to become more stretched in the coming months,” it said.
The Bank said lenders still have strong capital ratios but they are expected to decline slightly in the coming quarters.
To help banks ensure they have the resilience needed, an increase in their countercyclical capital buffer rate (CCyB) was confirmed from 1% to 2% from July 2023.
