In this context, real growth in lending to companies fell to 4.3% annually in November, from a peak of 13.4% in June. Several other economies around the world have also shown a slowdown in commercial credit, consistent with the increase in income flows that has come with the increased mobility (Figure 12). The corporate sector increased their indebtedness in order to cope with an unexpected and steep drop in cash flows and avoid solvency problems. Leverage has grown across firms of different sizes and sectors, although it has been most intense in the medium-sized ones and in trade, business and personal services lines, which have been among the hardest hit throughout the course of the pandemic. This upward trend in borrowing has also been seen in the rest of the world, amid the favorable financial conditions that came with the onset of the sanitary emergency. As for households, consumer credit continued to decline, mirroring previous recessions, while for mortgage credit the slowdown has been much more moderate. In the former, annual contraction was around 16% in real terms in the past few months, reflecting a still partial upturn in employment, as well as the increase in the households’ available resources as they withdrew their pension savings. The growth in mortgage loans is still positive, averaging around 6% annually in real terms since the statistical closing of our September 2020 Monetary Policy Report. Page 4 of 19  In this context, the higher risk associated with the different portfolios persists.

In light of the pressures on firms and your and our need to focus on Covid-19 specific stresses we decided to pause the work we needed to do with firms to ensure the results were sufficiently robust to publish. We did learn some lessons from the work we had done that will be useful in our preparation for the climate focussed scenario:  1. Many firms struggled to identify and allocate their investments to sectors identified as having different levels of vulnerability to climate change. 2. Current model designs constrain scenario outcomes – for example, natural catastrophe models often implicitly make allowance for flood defences making it difficult to reflect and assess tipping points as temperature changes become increasingly extreme. 7  NCSC: https://www.ncsc.gov.uk/news/covid-19-exploited-by-cyber-actors-advisory https://www.bankofengland.co.uk/prudential-regulation/publication/2019/enhancing-banks-and-insurersapproaches-to-managing-the-financial-risks-from-climate-change-ss 8  8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  3. Climate risk management is not yet embedded – for example, for many firms the responses to a questionnaire on adherence to our Climate Supervisory Statement (3/19) suggested greater progress than that indicated in the completion of the stress test. Earlier this month the PRA announced that the launch of the Climate Biennial Exploratory Scenario will be postponed until at least mid-20219. This delay reflects a desire to maintain the ambitious scope of the exercise, and give firms enough time to invest sufficiently in their capabilities to allow them to deliver to a high standard. Conclusions  A core objective of supervision is to ensure that firms are resilient throughout the economic cycle.