DAVY VIEW

Yesterday (July 5th), the Bank of England’s Financial Policy Committee (FPC) decided to press on with plans to raise the counter-cyclical capital buffer (CCyB) from 1% to 2%, effective from July 2023, despite the potential for debt distress due to higher interest rates and inflation. The accompanying Financial Stability Report (FSR) set out analysis arguing that the share of potentially exposed UK firms and households will stay at historically low levels, albeit also indicating that the FPC may cut the CCyB if economic conditions deteriorate.