The Monetary Policy Committee (MPC) of the Bank of England (BoE) has kept interest rates on hold at its June meeting as it waits to see if the economy and inflation continue to weaken or whether the country will be hit by an energy price shock from the Israel-Iran conflict. UK inflation cooled slightly in May after jumping in April with price growth in the key services sector dropping more sharply. Overall economic output shrank by the most since 2023 in April due to the impact of U.S. President Donald Trump’s trade tariffs and a one-off hit from the end of a tax break on home sales. However, BoE Governor, Andrew Bailey, and his MPC colleagues were already expected to stick to their cautious tone about cutting Bank Rate even before the outbreak of the Israel-Iran conflict which had pushed up oil prices.
The latest Reuters monthly poll of economists indicates that the UK economy will grow only slightly this year with the Bank of England (BoE) set to cut interest rates twice more in 2025 to reach 3.75% at the year-end. Median expectations showed the UK economy growing by 1.0% this year and accelerating slightly next year to 1.2%. The poll forecasts match the latest projections of the Office for Budget Responsibility (OBR). The UK economy grew by 0.7% in the first quarter but growth is expected to slow to 0.1% this quarter and rise slightly to 0.2% in the third quarter, followed by a 0.3% rise in the final three months of 2025. The Poll also indicated that the median view of economists is for UK inflation to remain elevated at an average 3.4% for this quarter and at an average of 3.3% for the next quarter before easing below 3.0% early next year.
The UK’s Financial Conduct Authority (FCA) is to extend rules covering non-financial misconduct such as bullying and discrimination beyond the banking industry in a bid to clamp down on bad behaviour. After its first comprehensive study into the scale of the problem, the regulator found last year that reports of bullying, discrimination and other non-financial misconduct in the UK’s finance industry had surged almost 60% over three years to 2023.
The FCA has said it will make it easier for investment firms to give customers support with their pensions and investments, a move broadly welcomed by finance firms who had complained about the current strict rule book. The FCA plans to create a new category of help for consumers called “targeted support” allowing firms to make suggestions to certain groups such as those not saving enough for retirement or holding excess cash.
Banco de Sabadell SA has agreed to sell its UK operation, TSB Banking Group plc (TSB), to its Spanish rival, Banco Santander SA for £2.65 billion. Sabadell is currently fighting an €11.0 billion hostile approach from its domestic rival BBVA and analysts say the process of selling off TSB could be a defensive move to keep its bigger peer at bay. TSB had £46.1 billion of assets as at the end of December, with loans and advances totalling £36.3 billion and deposits amounting to almost £35.1 billion.
The Bank for International Settlements (BIS) has issued its starkest warning yet on the risks posed by stablecoins. The BIS believes that the question of disclosure is where some of the stablecoins differ which gives rise to concerns about the quality of the asset backing. As a consequence, the BIS wants central banks to go down the route of tokenised unified-ledgers that would incorporate central bank reserves, commercial bank deposits and government bonds.
During the month Fitch upgraded the long-term credit ratings of NatWest Group plc and other rated Group entities with “Stable” outlooks to reflect the agency view that the Group should continue to generate sound risk-adjusted operating profits, underpinned by the structural improvement in its business profile which is expected to be resilient through future economic and interest rate cycles. Fitch also raised the outlook for Quintet Private Bank Europe S.A. to “Stable” to reflect progress in executing its Group transformation and restructuring plan, leading to a sustainable improvement in profitability while the trajectory of net new money in core private banking appears positioned to strengthen. In addition, Fitch upgraded the long-term credit ratings of Virgin Money UK PLC and its banking subsidiary (Clydesdale Bank plc) with “Stable” outlooks to reflect the completion by Nationwide Building Society (the Ultimate Parent) of the consent exercise for most of Virgin Money UK ‘s minimum requirement for own funds and eligible liabilities (MREL) debt which will result in a transfer of the debt to Nationwide and increase the likelihood of financial capital support, if needed.