Financial Markets have assigned a 90% probability of a 0.25% cut in Bank Rate in December which would take it down to 3.75%, from 4.00%. This is consistent with the view of economists who expect the Monetary Policy Committee (MPC) to resume easing interest rates at their next meeting on the 18th December (after pausing in November) citing slowing growth and gradual disinflation. Most economic forecasts anticipate two further cuts by mid‑2026, aligning with the broader trajectory of monetary loosening.
The Bank of England (BoE) has cut the amount of regulatory capital that it estimates lenders need to hold in a bid to boost lending and stimulate the UK economy. This is the first reduction to bank regulatory capital demands since the financial crisis. The review showed that the benchmark for Tier 1 capital requirements for lenders, set at 14.0% since 2015, could be reduced by 1.0% to 13.0% – consisting of an underlying optimal level of 11.0% + a 2.0% buffer for outstanding gaps and shortcomings in the measurement of risk-weighted assets.
From December, UK-regulated bank customers will benefit from an increase to the maximum amount they would be reimbursed for if their bank were to fail. The Prudential Regulation Authority (PRA) has confirmed that the deposit protection limit, which applies to the Financial Services Compensation Scheme, will protect up to £120,000 of a depositor’s money should their bank, building society or credit union fail. In addition, the Lifetime Event Cover which provides temporary protection following major life events has been raised to £1.4 million to better reflect current financial realities and ensure consumer protection.
According to informed sources, the Bank of England (BoE) is preparing to ease some parts of the UK’s bank ring-fencing regime while opposing a major reform sought by lenders. The rules apply to the larger banking groups with more than £35.0 billion in retail deposits. Banks had been lobbying the UK Treasury to be allowed to use some of the £35.0 billion to fund other activities. Among other things, the BoE is believed to be open to permitting essential back-office functions to be shared across the two entities.
Moody’s has updated its global bank rating methodology to allow certain hybrid instruments to be rated closer to senior unsecured debt. This reflects a more granular approach to debt instrument ratings, independent of issuer-level assessments. This should help investors better assess the actual risk of the bonds or loans they hold. In relation to reflecting structural nuances, different debt instruments may have varying levels of seniority, collateral, or legal protections. Moody’s believes that it will enhance comparability by now rating long-term debt separately – since a single issuer rating may not always capture these nuances, especially in complex capital structures.
During the month, S&P upgraded the long-term credit ratings of the Bank of Ireland as part of a general rating action on the Irish banking sector to reflect their risk-adjusted profitability supported by sound risk profiles, healthy balance sheets, increased efficiency, and revenue diversification efforts. S&P also upgraded the long-term credit ratings of FirstRand Bank Limited as part of a general rating action on the South African banking sector to reflect the recent Sovereign upgrade, driven by South Africa’s improving economic growth and fiscal trajectory. In addition, S&P upgraded the long-term credit ratings of Skandinaviska Enskilda Banken AB (SEB) to reflect its high risk-adjusted profitability while its revenue diversification, solid operational efficiency and earnings strength underpinned by exceptional asset quality and the resilience of its customer base. Meanwhile, Moody’s upgraded the long-term bank deposit rating of HSBC UK Bank plc to reflect agency expectations of a very high probability of support from the Parent leading to an assumption of very low loss-given-failure as well as an assumption of moderate probability of government support. Moody’s also: lowered the outlook for Standard Chartered Bank to “Stable”; raised the outlook for Swedbank AB to ”Positive”; and upgraded the long-term bank deposit rating of Nordea Bank ABP – as part of a general rating action on many banking groups in Western Europe following the update of its “Banks Methodology. In addition, Moody’s upgraded the long-term bank deposit rating of HSBC Continental Europe SA to reflect the strong risk-weighted capital position and improved asset quality following the sale of the French retail activities as well as its strong liquidity that has partly mitigated the Bank’s moderate risks from the current restructuring initiative.