The Monetary Policy Committee (MPC) has kept its benchmark interest rate on hold at its September meeting as inflation continues to creep up. However, according to a majority of economists in the latest Reuters monthly poll, expectations are for a further interest rate cut this year and again early next year. Nevertheless, a growing minority of poll respondent say the central bank is done with cutting rates this year. More than 30% of respondents now predict that Bank Rate will remain unchanged for the rest of the year, compared with 15% in August. Inflation is expected to touch 4.0% in September, according to BoE projections, and not return to its 2.0% target until mid-2027.
The above interest rate predictions are broadly consistent with the views of major brokerage firms who expect no more BoE interest rate cuts this year. Goldman Sachs and Morgan Stanley now project the next easing cycle to start in February 2026, with quarterly reductions thereafter, but say a December cut could be warranted if near‑term data deteriorate notably. J.P. Morgan pushed back its rate cut call to February 2026.
The UK’s biggest lenders are pushing ahead with plans to launch tokenised versions of customer deposits next year, a move that follows BoE Governor Andrew Bailey’s plea to prioritise the technology over stablecoins. Tokenisation typically refers to creating digital representations of assets such as deposits, stocks and bonds that are stored on a blockchain. Proponents say they can make transacting faster, cheaper and safer. The pilot comes after Mr. Bailey said in July that, while he was not against stablecoins, he could not understand their need and believed tokenisation offered more value. Stablecoins is a type of cryptocurrency pegged to a fiat currency (i.e. a government-issued currency not backed by a physical commodity). Tokenisation should allow banks to innovate while keeping payments inside the regulated banking system.
The UK’s Financial Conduct Authority (FCA) has announced that it is in the process of scouring 30 million historic car finance agreements (between 2007 and 2020) to see if consumers are eligible for compensation due to unfair loan terms. The FCA has said there was evidence of unfair relationships between lenders and consumers where commissions paid were not adequately disclosed and that many consumers did not get the fairest interest rate when securing motor loans. The FCA has proposed a customer redress scheme for motorists who were sold unfair motor loans that were packaged up by car dealers and has estimated it could cost the finance industry between £9.0 billion and £18.0 billion in compensation. The FCA is on track to publish the results of a six-week consultation about the scope of a redress scheme in October.
Media reports suggest that Starling Bank Limited is understood to be preparing a secondary share sale that could value the digital lender at up to £4.0 billion. The Bank is believed to be also considering a listing in New York as part of its expansion plans in the United States.
During the month Moody’s upgraded the long-term credit ratings of Allied Irish Banks p.l.c. to reflect its reduced asset risk, its strong capitalisation and significantly improved core profitability as well as its stable Customer Deposit book and high levels of high-quality liquid asset holdings. Moody’s also upgraded the long-term credit ratings of Bank of Ireland to reflect its leading positioning as the only bancassurer in a concentrated Irish banking system, its strong and improved asset quality, its strong capitalisation levels and significantly stronger core profitability. In addition, Moody’s raised the outlook for OneSavings Bank plc to “Stable” to reflect agency expectations that asset quality will stabilise with lower interest rates as borrowers’ affordability pressures ease as well as reflecting expectations that the Bank will be able to maintain its market position in a competitive environment. Moody’s also upgraded the long-term credit ratings of Toronto Dominion Bank to reflect its solid financial fundamentals and strong Canadian retail franchise as well as benefitting from a well-diversified group of core activities in North America. Fitch raised the outlook for Coventry Building Society to “Stable” to reflect reduced risk to the Society’s capitalisation and leverage as well as reflecting the agency view that the Society has made reasonable progress on its multi-year integration timeline of the Co-operative Bank despite ongoing significant execution risks. S&P upgraded the long-term credit ratings of Swedbank AB to reflect that the Bank has significantly strengthened its governance, compliance, and risk management framework to address the serious deficiencies raised by regulators.