Markets are at risk of “a sharp correction, which could affect the cost and availability of credit to UK households and businesses,” says a Bank of England report, following volatile global stock markets in August that have now stabilised.

However, the Bank’s Financial Policy Committee adds that mortgage holders continue to be “resilient to higher interest rates”

The committee says that August saw several factors buffet world financial markets including the possibility of a US recession, faltering US tech share prices and the sudden rise of the Japanese yen.

In the US, the Dow Jones Industrial Average slumped by more than 1,000 points, or 2.6%, on 5 August, but ended the month up 2%.

While the FTSE 100 tumbled 170 points, or 2%, on the same day, but was 8% higher in the year to the end of August.

“There was a significant spike in volatility across global financial markets in August,” says the committee’s Financial Policy Committee Q3 Record.

It adds: “Although short-lived, the extent of the moves, in response to relatively limited economic news, illustrates the potential for vulnerabilities in market-based finance to amplify shocks.”

The committee points out: “Markets remain susceptible to a sharp correction, which could affect the cost and availability of credit to UK households and businesses, with investors sensitive to short-term developments in a challenging global risk environment.”

The report says that mortgage holders continue to cope with higher interest rates, which moved from 0.1% in December 2021 to their current 5% rate.

But points out that many mortgage holders are still to refinance at higher rates.

It says: “Overall, mortgagors continued to be resilient to higher interest rates, although some lower income households and renters remained under pressure.”

But adds that “around a third of mortgagors had not yet refinanced at higher interest rates”.

The committee says that the proportion of mortgagors spending “more than 70% of the cost-of-living adjusted disposable income on mortgage payments was expected to remain broadly flat,” well below the peaks prior to the 2007 global financial crisis.

It adds that mortgage and consumer credit arrears were “largely unchanged” since its June meeting and remain low by historical standards.