LONDON: The Bank of England on Wednesday said its multiple interest-rate hikes aimed at cooling high inflation would prolong a cost-of-living crisis but stressed UK retail banks could contain the fallout.

The BoE’s Financial Policy Committee (FPC) said in a report that almost five million UK homeowners would see mortgage repayments soar over the next three years.

Retail banks tend to pass on BoE rate hikes, hitting customers whose home loans come with variable rates and those whose fixed-term deals are expiring.

Bank of England keep rates at 15-year high, rules out quick cuts to help economy

The FPC on Wednesday said “household finances remain stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments”.

“Arrears for… credit remain low but are rising as the impact of higher repayments is felt by borrowers,” it added.

At the same time, it concluded that “the UK banking system is strong enough to support households and businesses, even if the economy does worse than expected”.

The Bank of England began lifting its main interest rate from a record low of 0.1 percent at the end of 2021, when inflation started to creep higher as economies slowly emerged from Covid-19 lockdowns.

It currently stands at 5.25 percent – the highest level in more than 15 years – following 14 hikes in a row.

UK inflation surged to a 41-year peak at 11.1 percent in October 2022, stoked by spiking energy prices after the invasion of Ukraine by major oil and gas producer Russia.

It has since dropped to 4.6 percent, but remains the highest level in the G7 rich nations and more than double the BoE’s 2.0-percent target rate.

While the BoE paused rates at its last meeting, some analysts still believe it could hike again if inflation remains stubbornly high.

This at a time when the US Federal Reserve and European Central Bank are seen cutting rates early next year.