According to the latest Reuters monthly poll of economists, the Monetary Policy Committee (MPC) of the Bank of England (BoE) will cut Bank Rate by another 75 basis points to 3.75% by this year-end. Economists mostly kept their interest rate forecasts unchanged from a poll taken in January despite raising their inflation predictions for this year and next. Accelerating wage growth and rising inflation have prompted the BoE to maintain a cautious approach towards easing monetary policy. More than 90% of economists polled said the risk to their inflation outlook for end-2025 was that it comes in higher than they expected rather than lower. Yet the majority made no changes to their rate forecasts and expected the BoE to cut Bank Rate to 3.75% by year-end, lowering rates at a steady 25 basis points per quarter.
The Bank of England (BoE) cut the Bank Rate in February by a quarter-point to 4.50% while some policymakers wanted a bigger move to offset the UK economic slowdown. However, the BoE said it would be careful about further interest rate moves in the face of an expected inflation spike and global economic uncertainty. The BoE has halved its growth outlook and expects inflation to be almost double its 2.0% target for 2025. BoE Governor, Andrew Bailey, said he thought that would prove to be a “bump in the road” before inflation falls back. The BoE said economic output has likely contracted by 0.1% in the three months to December and has halved its growth forecast for 2025 to just 0.75%, reflecting weak business and consumer sentiment and more sluggish productivity growth.
Bank of England (BoE) Governor, Andrew Bailey, has cautioned that the cost of the 2008 global financial crisis should not be forgotten during a backlash against the burden of financial regulation and has warned that the BoE will need to monitor new vulnerabilities. Mr Bailey believes that there can be no trade-off between economic growth and financial stability. Over the past month, Chancellor Rachel Reeves has stepped up pressure on regulators and other public bodies to boost economic growth. Mr. Bailey said more regulation was not the only option to tackle financial risks and highlighted the BoE’s development of a new liquidity facility for non-bank financial firms and its recommendation for improved clearing of gilt repo transactions.
The UK Supreme Court has rejected a move by Chancellor, Rachel Reeves, to intervene in a landmark case on car loan mis-selling, sending shares in lenders Close Brothers and Lloyds Banking Group sharply lower. The UK Treasury had said that it was worried that a court judgment handed down in October last year, if allowed to stand on appeal, would make it hard for consumers to get future car loans. The UK Treasury argued that any customer redress should also be proportionate to the losses suffered by consumers. Close Brothers and Lloyds Banking Group are two of a number of lenders with significant motor finance businesses. Lloyds has set aside to date a £1.15 billion provision to cover possible redress costs while Close Brothers has set aside £165.0 million. A spokesperson for the UK Supreme Court said an application by the UK Treasury was refused, while an application by the UK regulator, the Financial Conduct Authority (FCA) was granted.
The Financial Conduct Authority (FCA) is to look into potential conflicts of interest at firms who manage private assets to determine if there is any adverse impact on investors. Money managers are ramping up activity in private markets, which include funds focused on infrastructure and credit, in response to a shift in investor demand away from actively-managed stocks. Unlike publicly-traded investment assets such as shares, private market investments are less liquid and price movements are less transparent. This can increase the risks for investors and make it more difficult for them to get their money out. The FCA also intends to review the risk in private markets posed by leverage which can create vulnerabilities – especially when it is poorly managed, or there is a lack of transparency, or it is concentrated.
During the month, Fitch upgraded the long-term credit ratings of Banco Santander S.A. and Santander Bank N.A. to reflect the Group’s strong and resilient performance that is underpinned by its broad and balanced geographic diversification, resilient earnings and good loss-absorption capacity as well as limited asset-quality variability over various economic cycles.