Economists are split on the timing of the first Bank of England (BoE) rate cut. The consensus view of the latest Reuters monthly poll of economists is for the BoE to wait until the third quarter to lower borrowing costs although almost half of those surveyed said the central bank would cut interest rates in June. The BoE has raised borrowing costs by 5.15% to a 16-year high between December 2021 and August 2023 to cool inflation that peaked at 11.1% in October 2022. All participants in the latest poll expect the BoE to hold Bank Rate at 5.25% in May.
The BoE has adjusted its estimates for the overall loss made by its QE bond purchase programme that will fully crystallise over the next 10 years. Based on the projection for interest rates as of late March, the QE programme looks set to generate a net loss of £85 billion by 2034, compared with an estimate in February of £80 billion. If interest rates were to fall back to around 2.5% – the BoE’s 2018 estimate of the non-inflationary equilibrium rate – then the loss would be £45 billion.
The BoE tells payment firms to step up disruption mitigation plans. The BoE has warned firms offering payment services in the UK that they must work much harder to meet new operational resilience standards by March 2025 for responding to disruptions such as cyber-attacks, glitches during any IT changeover or extreme weather hitting a server centre. The BoE has recently introduced new rules that financial market infrastructure (FMI) firms must meet by March 2025.
UK lenders have been told by the Financial Conduct Authority (FCA) to ensure they are adequately prepared to meet the potential costs of customer complaints arising from its review into the motor finance industry. The watchdog said lenders should assess their ability to meet potential future liabilities resulting from any spike in customer complaints. The regulator is planning to set out its next steps in September but said that some companies were struggling to provide the data it needed and so it is prepared to extend its review, if necessary.
The Coventry Building Society (the Society) has offered to buy the Co-operative Bank plc for £780 million in cash in the latest attempted tie-up among UK lenders jostling for market share amid a weakening demand for loans. The deal would create a group with a pro-forma balance sheet of circa £89.0 billion based on 2023 year-end information. Meanwhile Toronto Dominion Bank has set aside an initial provision of $450 million in relation to ongoing discussions with a U.S. regulator over an AML probe and any further penalties it might incur. The Bank has said that its discussions with three U.S. regulators and the Department of Justice (DOJ) were ongoing and that it anticipates additional monetary penalties. Analysts expect total fines to be anywhere between $500 million and $1 billion – a sum they advise that the lender can comfortably afford.
During the month, Fitch has lowered the outlook for Chinese banks to “Negative” as part of a general rating action to equate the outlooks with that of the China sovereign rating outlook which was lowered to reflect increasing risks to China’s public finances as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the Chinese Government views as a more sustainable growth model. The banks affected included: Bank of China Ltd; China Construction Bank Corporation; and Industrial Commercial Bank of China Limited. Meanwhile S&P has raised the outlooks for JPMorgan Chase & Co., its main investment banking subsidiary (JP Morgan Chase Bank N.A.) and other core Group subsidiaries to “Positive” to reflect the agency view that the Group is well positioned to deliver peer-leading results under various macroeconomic scenarios due to its business strength and diversification. In addition, Moody’s has raised the outlook for Swedbank AB to “Positive” to reflect the agency view that over the next 18 months the Bank will continue to build its resilience to meet potential fines or other regulatory actions and demonstrate governance performance on a par with its peers. Moody’s has also raised the outlook for Commerzbank AG to “Positive” to reflect agency expectations of continued progress in executing its strategic plan that could result in a sustainably improved financial profile which in time would support consideration of an upward credit rating shift.