The consensus view from the latest Reuters monthly poll of economists is that the Bank of England (BoE) will cut interest rates just once more this year in November as UK inflation is expected to stay above its 2.0% target. At its August meeting, the BoE’s Monetary Policy Committee (MPC) trimmed Bank Rate to 5.0% from a 16-year high of 5.25%, in a tight 5-4 vote. Inflation fell to the BoE’s 2.0% target in May but rose to 2.2% in July and is not expected to recede below target anytime soon. The BoE has projected inflation to rise to 2.75% by the year-end. Median forecasts showed Bank Rate for 2025 at 4.50% at end-March, 4.25% at end-June and 3.75% at end-September with no further change that year. However, financial markets are pricing in two more rate cuts this year, in November and December with the year-end interest rate at 4.50%.
UK-based banks are stepping up lobbying efforts against possible tax hikes in the UK Government’s inaugural BUdget on the 30th October amid mounting worries it may tap the cash-rich banking sector to boost the UK’s finances. The sources, who declined to be named because of the sensitivity of the matter, said they anticipte the UK Treasury will seek to hike taxes by increasing an existing surcharge on profits that lenders already pay. This plan would be easier to implement rather than cutting the amount of interest UK banks earn on reserves parked at the Bank of England, a measure which could distort the effects of its monetary policy, the sources said. The existing UK bank levy was introduced in 2011 to curb a crisis-era culture of excessive risk and reckless growth across the industry in the wake of the global financial crisis.
The Bank of England (BoE) intends to set out its “near final” interpretation of Basel bank capital reforms aimed at shock-proofing global lenders in mid-September amid mounting speculation it could delay implementation until January 2026. Regulators began rolling out the Basel III rules after the 2007-2009 global financial crisis forced taxpayers to bail out several undercapitalised banks. The BoE has previously said the new rules would come into effect in the UK in July-2025. The BoE’s Prudential Regulation Authority (PRA) also said it would publish a consultation paper in mid-September covering the capital-related aspects of its “Strong and Simple” regime, a lighter version of Basel for smaller lenders that pose fewer risks to the financial system.
Shares in the FTSE 250 holding company of lender, OneSavings Bank plc, dropped by 28% over the month after the Group lowered its forecasts for the full year on the back of rising competition in the mortgage market. Alongside its interim financial results, the Group said it expected its net interest margin (NIM) – measuring of the gap between interest received on loans and rates paid for deposits – to be between 2.3% and 2.4% for the full year. This range is down from its previous guidance of around 2.5. The latest share price fall comes after previous blows to the Group’s share price from a profit warning in July and lower than expected margin guidance in March. Despite the share price reaction, the Group reported a sharp rise in pre-tax profit of £241.3m for the first half of 2024, compared to £76.7m during the same period last year, as well as announcing a new £50m share buyback programme.
During the month Moody’s downgraded the long-term credit ratings of Close Brothers Limited and its Parent to reflect expectations for a diminished earnings consistency and growth strategy as a result of capital actions the Group has implemented to absorb potential redress costs from the FCA review of motor finance lending. In addition, Moody’s lowered the outlook for Toronto Dominion Bank to “Negative” to reflect a further provision of US$2.6 billion in respect of its current estimate of the total fines related to the civil and criminal investigations into its anti-money laundering (AML) programme by U.S. regulators. Meanwhile S&P upgraded the long-term credit ratings of Commerzbank AG to reflect its strengthening business model and financial performance as well as reflecting expectations that the Bank will execute its strategy and demonstrate improved risk-adjusted profitability based on its enhanced solid domestic market position. S&P also upgraded the long-term credit ratings of the National Bank of Canada to reflect an increased likelihood of government support in the event of financial distress, given its growing importance to the Canadian economy, which will be further bolstered by its planned acquisition of Canadian Western Bank.