The Monetary Policy Committee (MPC) at the Bank of England (BoE) voted by 6-3 to keep interest rates on hold at the December meeting which was a bigger split than economists had predicted as officials disagreed over how to respond to a slowing economy that remains beset by inflationary pressures. However, BoE Governor, Andrew Bailey – who voted with the majority to keep Bank Rate on hold at 4.75% – said the central bank needed to stick to its existing gradual approach to cutting interest rates. The UK economy contracted in both September and October with much of the blame pinned on the UK Government’s announcement of £25 billion of tax increases for employers. However, signs of sticky inflationary pressures that includes faster-than-expected wage growth has since prompted financial markets to scale back their expectations. Financial markets now predict a 45% chance of a quarter point rate cut in February 2025. Median forecasts from the most recent Reuters monthly poll predict that the BoE would cut Bank Rate by 25 basis points each quarter next year, lowering it to 3.75% by end-2025.
The UK’s Financial Conduct Authority (FCA) is giving customers who struck historic finance deals to lease motor vehicles additional time to complain about commission payments as it widens a review on motor-related undisclosed commission payments that originally focused only on credit agreements. The regulator is considering a sector-wide compensation scheme that analysts say could run into billions of pounds after London’s Court of Appeal ruled in October 2024 that it was unlawful for car dealers to receive commission from banks without a customer’s informed consent. The finance and leasing industry could be on the hook for as much as £30 billion according to Moody’s. The FCA has said that consumers have until the end of July 2026, or 15 months from the date of their final response letter from the relevant lender or broker, to refer unsatisfactory responses on non-discretionary commissions to the Financial Ombudsman.
The UK’s Financial Conduct Authority (FCA) has been accused in London’s High Court of unlawfully failing to help thousands of people excluded from a £2.2 billion bank redress scheme relating to interest rate hedging products. The FCA faces legal action over its response to an independent review of the scheme under which nine banks agreed to pay compensation. Thousands of customers were left out on the basis of a “sophistication test”, which excluded those with a turnover of more than £6.5 million and over 50 employees. An independent review commissioned by the FCA concluded in 2021 that those sales were excluded “without proper justification”, but the FCA subsequently decided not to take further action. The hearing continues with a ruling expected at a later date.
The UK Government has cut its stake in NatWest Group plc to 9.99% that brings the lender one step closer to full private ownership 16 years after it was nationalised during the global financial crisis. This still leaves the UK Government as the bank’s biggest shareholder. NatWest Group shares have surged about 85% in 2024 to their highest since 2011 but they still remain a fraction of their pre-crisis price levels.
During the month, Moody’s downgraded the long-term credit ratings of 7 French banks (including major banks BNP Paribas S.A. and Crédit Agricole S.A.) by one notch with “Stable” outlooks as part of a general rating action following the downgrade of the sovereign rating to reflect the agency view that France’s public finances will be substantially weakened over the coming years because political fragmentation is more likely to impede meaningful fiscal consolidation. Moody’s also upgraded the long-term credit ratings of the National Bank of Canada with a “Stable” outlook to reflect its solid and stable profitability supported by its disciplined growth strategy, its strong asset quality and capital position, and healthy levels of funding and liquidity that protect against any market shocks as well as its growing presence across Canada, including through its recently announced acquisition of Canadian Western Bank. In addition, Moody’s downgraded Coventry Building Society with a “Stable” outlook to reflect the elevated operational challenges of integrating the Co-operative Bank into the Society (given its relatively large size) and the heightened risks involved in the integration of technology platforms, systems, risk appetites and governance.