December 15, 2016
In June 2016, the United Kingdom voted to leave the European Union. This was followed in August by the Monetary Policy Committee’s decision to cut Bank Rate by 25 basis points to 0.25% and to introduce a further package of policy-easing measures. Evidence from the latest NMG survey of households, collected over the first three weeks of September, can provide an insight into how households have been affected by these events. How households react to these developments will, in part, depend on the state of their balance sheets. Households’ balance sheets have improved since the financial crisis, and while evidence from the latest survey suggests that this improvement may have come to an end, the share of households with high mortgage debt servicing costs is low by historical standards. The survey suggests that the August cut in Bank Rate had already been passed through to lower mortgage costs for many borrowers. But when asked about how they might respond to a hypothetical further fall in mortgage payments, households reported that paying off debt and saving more were likely to be a more common response than increasing spending.Households reported that the EU referendum result had only had a modest impact on their finances (summary chart). There had been little sign of a change in credit demand and no large rise in uncertainty. But there had been some softening in households’ expectations for their personal financial situation and income. Consistent with that, households had revised down their expectations for house price growth.
Bank of England Quarterly Bulletin
Volume and page numbers
Volume: Q4 , p.189 -199