Chancellor sets 2025 remit for Bank of England’s FPC

You might never sit in an FPC meeting, but you’ll feel its decisions in your mortgage options, your bank’s safety, and how steady the wider economy feels. HM Treasury published the 2025 remit on 26 November 2025 and added the Committee’s formal response on 6 January 2026. We’ll walk you through what the remit says, what the FPC does, and how it touches your day‑to‑day. (gov.uk)

First, the basics. The Financial Policy Committee sits inside the Bank of England and looks across the whole financial system for risks that could cause serious disruption. By law, its primary job is to maintain financial stability; subject to that, it should support the government’s economic policy, including growth and jobs. That balance-safety first, support growth where possible-frames every decision. (Source: HM Treasury letter to the Bank of England.) (gov.uk)

So what’s new for 2025? The Chancellor’s letter sets clear priorities: keep a close eye on risks outside the banking system (think investment funds and private markets), keep scanning global shocks, strengthen cyber and operational resilience, and continue to factor climate and nature risks into stress testing and policy. The government also wants the system to work for growth, referencing its Financial Services Growth and Competitiveness Strategy and the Leeds Reforms. (gov.uk)

Mortgages are where many of us meet policy in real life. In 2025 the FPC updated how its 15% loan‑to‑income flow limit is implemented so individual lenders can go above that threshold, as long as the market as a whole stays within the 15% cap. The Prudential Regulation Authority has offered a temporary ‘modification by consent’ to put this into practice. This could widen access for some first‑time buyers, though deposits remain a big hurdle. (Sources: Bank of England December 2025 Financial Stability Report; PRA statement.) (bankofengland.co.uk)

Here’s a plain‑English primer on the tools you’ll hear about. The countercyclical capital buffer is a cushion the FPC raises when risks build and can release in a downturn to help banks keep lending; as of 2 December 2025 the UK rate is 2%. The Committee can also direct ‘sectoral capital requirements’-temporarily asking banks to hold more capital against areas like mortgages or commercial property. And it has powers over the capital‑to‑exposure (leverage) ratio framework to make sure models don’t understate risk. (Sources: Bank of England CCyB page; HM Government on sectoral capital; Bank of England on the leverage framework.) (bankofengland.co.uk)

What this means in numbers: the Bank of England notes the share of new mortgages with high LTIs rose to around 9–10% through 2025, still below the 15% aggregate limit, with lenders beginning to adjust after the FCA clarified stress‑testing rules and the FPC updated its recommendation. Translation: slightly more room at the margin for higher‑LTI loans, but the guardrails remain. (Source: December 2025 Financial Stability Report.) (bankofengland.co.uk)

Bank strength is another headline item. In its response to the remit, the FPC says its benchmark for the level of Tier 1 capital the system needs in the long run is now around 13% of risk‑weighted assets, down from about 14% previously. Recent stress tests showed major lenders could keep supporting households and firms even in severe scenarios-useful reassurance when growth is fragile. (Source: FPC response letter and December 2025 FSR.) (assets.publishing.service.gov.uk)

The remit isn’t just about banks. It explicitly flags the non‑bank sector-funds, market plumbing and key service providers. The letter welcomes work on the gilt repo market and a new Contingent Non‑Bank Financial Institution Repo Facility to help manage market‑wide liquidity strains. That’s technical, but the aim is simple: keep vital markets functioning so payments clear and credit keeps flowing. (Sources: HM Treasury remit letter; FPC response letter.) (gov.uk)

Accountability matters. The remit requires the FPC to explain how it uses its powers, set out the costs and benefits, and be transparent when its stability goal and growth support might collide in the short term. Crucially, the Committee must respond to specific recommendations-and it did so on 19 December 2025, with HM Treasury posting that reply and updating the GOV.UK page on 6 January 2026. (Sources: GOV.UK publication page; HM Treasury letter.) (gov.uk)

If you’re studying economics or teaching citizenship, here’s how to follow along. Check the Bank’s quarterly decisions on the countercyclical buffer, watch mortgage data to see how high‑LTI lending evolves against the 15% cap, and read the Financial Stability Reports for the latest risk map. The remit is the starting brief; the FPC’s updates show how policy shifts as risks change. (Sources: Bank of England CCyB page; December 2025 Financial Stability Report.) (bankofengland.co.uk)