December 15, 2015 / 12:03 PM / 2 years ago

UK households better placed to cope with rate hike - BoE survey

A builder works on the roof of a new residential property development in north London, March 21, 2013.Neil Hall

LONDON (Reuters) - Britain's first rate hike in nearly a decade should have little impact on spending as households are better placed to cope with higher borrowing costs than last year, a survey commissioned by the Bank of England showed on Tuesday.

British households' debt represents a hefty 135 percent of their income, making them potentially sensitive to a rise in interest rates, which financial markets pencil in for late 2016 or early 2017.

But the survey does not foresee an "unusually large effect on household spending".

It estimates a 1 percentage point rise in interest rates could reduce aggregate spending by around 0.5 percent as borrowers reduce spending by more than savers increase it.

Households have been able to reduce their debts as a share of income in recent years, helped in part by historically low interest rates. The Bank has kept its benchmark rate at a record low of 0.5 percent since 2009.

"Modest improvements in balance sheet positions imply that households are in a slightly better position to cope with an increase in interest rates than they were a year ago," the survey of around 6,000 British households conducted by NMG Consulting said.

The survey results also suggest that government spending cuts would continue to weigh on household spending.

(The story was refiled to include a missing word in the lead)

Reporting by Ana Nicolaci da Costa, editing by David Milliken

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