Bank of England warns on corporate default risk 

The Bank of England has warned that rising interest rates are putting British companies at higher risk of corporate defaults, with the proportion of non-financial companies experiencing debt-servicing stress expected to hit 50% by the end of the year, up from 45% in 2022.

The proportion rose to 70% for medium-sized companies, meaning corporate debt stress would hit its highest level since the 2008-09 financial crisis.

The share of companies in this position is expected to stay below historical peaks. Higher interest rates are putting pressure on indebted corporates through higher debt servicing costs. Such pressure increases the likelihood of defaults on corporates’ debt and may lead some firms to reduce investment and employment sharply.

The Bank of England says that defaults can increase risks to financial stability directly through reducing lender resilience, while sharp reductions in investment and employment can indirectly affect financial stability by amplifying macroeconomic downturns.