However, further increases in aggregate demand may lead to overheating in the economy. Financial system resilience and macroprudential policy So, we find ourselves in the interesting position of considering a potential slowdown in the international environment and the UK leaving the EU. And at the same time, also worrying about potential overheating from a domestic perspective.
To illustrate the magnitude of this, we can estimate the effects of a 100 basis point reduction in the cash rate on net interest payments (as a share of household disposable incomes; Graph 6). 12 There has been a noticeable increase in households’ holdings of interest-earning assets (such as bank deposits) over recent years (Graph 7).