U.K. household spending will hold up once interest rates start to increase, according to the Bank of England, citing a survey of British consumers it commissioned. While borrowers would cut spending in response to a higher benchmark rate, that would be partly offset by higher spending by savers, the BOE said. The share of borrowers with high debt servicing costs would also rise, though this would be below previous peaks.
Governor Mark Carney and other policy makers are assessing high debt levels as they gauge the economy’s ability to withstand an increase in the key interest rate from a record-low 0.5 percent. A majority of officials on the Monetary Policy Committee have cited a lack of wage gains and risks from the euro area as a reason to maintain the current policy.
“These results do not imply that increases in interest rates from their current historically low level would have unusually large effects on household spending,” the BOE said in its Quarterly Bulletin published today. “The outlook for household income is a key factor that will determine the vulnerability of households to a rise in interest rates.”
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