According to the latest Reuters monthly poll of economists, the Monetary Policy Committee (MPC) of the Bank of England (BoE) will cut Bank Rate four times this year to support a flat-lining UK economy but has cautioned that risks to inflation are to the upside, suggesting policymakers may end up cutting less often. Interest rate futures are pricing in only two reductions this year as recent volatility in global bond markets underscore rising inflation concerns linked to U.S. President Donald Trump’s protectionist economic agenda. 60% of economists polled in early January 2025 expect four quarter-point cuts (starting in February) and which would take Bank Rate to 3.75% by the year-end. Complicating matters has been a sell-off in the pound during January and the rising yield trend in UK government debt that has pushed the benchmark 10-year gilt to its highest level since 2008.
The UK Financial and Conduct Authority (FCA) has told the UK Government that it would take greater risks to support its drive for more economic growth but warned that the approach would lead to more failures and harm to consumers and businesses. FCA Chief Executive, Nikhil Rathi, has informed Prime Minister, Keir Starmer, and Chancellor, Rachel Reeves, that it would collaborate to support the government’s growth mission as it set out proposals including easing mortgage access and reducing regulations. Mr Rathi also stated that the FCA could go even further and, with government support, reduce costs of anti-money laundering measures by relaxing ‘know your customer’ requirements on small transactions. Among its proposed digital reforms, the FCA is considering removing a £100 cap on payments with contactless cards that would give businesses and consumers more flexibility.
A move by the UK Government to intervene in the mounting motor finance scandal has fuelled hopes that the car loan industry will avoid paying out tens of billions of pounds in PPI-style compensation crisis. It has emerged that the UK Treasury is seeking permission to intervene in a Supreme Court case that is at the heart of the controversy over motor finance. The UK Government wants to argue that the case, which is due to be heard in April, could stoke investor concerns about the wider regulatory environment. It also wants to try to limit any redress that lenders might be forced to pay proportionate levels. The Treasury’s application to the court boosted shares in banks that are most exposed to the scandal (e.g. Close Brothers Group; Investec Group; Lloyds Banking Group and Santander UK Group). About 80% of vehicle purchases are made on finance. This could result in lenders, ranging from banks to the financing arms of carmakers, paying out as much as £44 billion in compensation.
Tough new standards aimed at preventing bank failures have been delayed in the UK by a further year as the Bank of England (BoE) waits to see how proposed global rules are enacted in the U.S. under President Trump. The BoE said it was deferring the introduction of Basel 3.1 standards until January 2027 because of uncertainty about the timing of any U.S. reforms. It said it was also taking into account competitiveness and growth considerations after consultation with the UK Treasury, which has ordered all regulators to give more priority to economic growth. Basel 3.1 is the final set of standards proposed by the Bank for International Settlements (BIS). It will force banks in some cases to hold more capital as a result of more careful definitions of risk-weighted assets (RWAs) which determine their capital adequacy ratios.
The Bank of England (BoE) has said that no decision will be made for at least a couple of years on whether the UK will go ahead with a central bank digital currency for the general public after a public consultation attracted widespread privacy concerns. As with existing bank accounts and credit card payments, authorities would be able to track transactions they suspect involve money laundering or finance terrorism. The BoE believes that the legislation would safeguard users’ privacy, guaranteeing that neither the BoE nor the UK Government could access users’ personal information nor control how households and businesses use their money.
Fitch has upgraded the long term credit ratings of Banco de Sabadell SA – the ultimate parent of TSB Bank plc – to reflect an improvement in the operating environment for the Spanish banking sector which in the agency view has led to a better overall risk profile and a strengthening of the bank’s asset quality, profitability and capitalisation.