The Bank of England (BoE) warned in its latest Financial Stability Report issued on Tuesday that the British households and businesses are likely to need "continuing support" from the financial system as risks to the recovery from the COVID-19 pandemic remain despite the "rapid rollout" of the country's vaccination program and an improved economic outlook.
The BoE vowed its Financial Policy Committee (FPC) will stay "vigilant to debt vulnerabilities in the financial system that could amplify risks to financial stability" and examine "whether new tools are needed specifically for this purpose." It also called for a "robust and coherent package of international reforms" to "address vulnerabilities in the global money market fund sector," and expressed its hopes over a Memorandum of Understanding on cooperation on financial services Britain and the European Union are negotiating over.
The BoE noted the share of households with high debt-servicing burdens has risen slightly during the pandemic while remaining "significantly below its pre-global financial crisis level." It also stressed the proportion of high-yield corporate bonds is at "its highest level in the past decade," which could "increase potential losses in a future stress, and highly leveraged firms have also been shown to amplify downturns in the real economy."
