The Bank of England (BoE) has kept its main interest rate unchanged at a 16-year high of 5.25% in June but some policymakers said their decision not to cut rates was now “finely balanced”. The BoE’s Monetary Policy Committee (MPC) voted 7-2 to keep rates on hold. BoE Governor, Andrew Bailey, said in a statement alongside the decision that it was “good news” that the latest inflation data had shown inflation was back at its 2.0% target but that it was too soon to cut interest rates. The BoE expects inflation to rise above target as the effect of past energy price falls drops out of annual inflation data and repeated its May forecast for inflation to be around 2.5% in the second half of 2024.

This is consistent with the consensus view of all but 2 of 65 economists that responded to the latest Reuters monthly poll who expect the Bank of England (BoE) to start cutting interest rates in August. Most of them also expect at least one more reduction this year despite persistently high pay and services inflation. Overall inflation eased to 2.3% in April, which was close to the central bank’s 2.0% target, from a peak of 11.1% in October 2022. The 2 economists who do not expect an August interest rate cut expect the BoE to wait until September to cut rates instead of August. The poll median forecast showed Bank Rate would be a half-point lower at year-end at 5.00% at the end of September and 4.75% at the end of the year. Financial Markets are pricing in only one interest rate cut this year in September.

Although the UK Labour Party has courted lenders in recent years, as it attempted to gain power, analysts caution that some of the left-leaning party’s policies are still expected to hit the sector’s profits. The Labour Party recently said it will review the benefits of longer-term fixed rate mortgages to shield homeowners from steep changes in interest rates and make home ownership more accessible. That pledge is leading some analysts, lenders and brokers to suggest the Labour Government could seek additional changes across mortgages and other financial products and services to tip the balance back in favour of consumers. While the Labour Government may lean on banks to widen their mortgage range, analysts and senior executives at UK banks agree it is now unlikely to pursue bank windfall taxes nor is it expected to overhaul how the Bank of England pays interest to banks on their deposits which is another policy mooted in recent months by politicians.

The NatWest Group (‘the Group’) has struck a deal to acquire most of the banking business of Sainsbury’s Bank plc in a deal that would increase the UK lender’s assets by £2.5 billion. The disposal by Sainsbury’s plc mirrors this year’s deal by rival supermarket chain, Tesco plc, to offload most of its banking activities to Barclays plc. The deal is expected to close in March 2025. Sainsbury’s Bank plc will retain its commission-income businesses, including insurance, ATMs and travel money, which it described as “capital-light and profitable” with a strong connection to its core retail operations.

ANZ Group has received regulatory approval to acquire the banking business of Suncorp for A$4.9 billion (£2.5 billion) – after almost two years of scrutiny by financial regulators and treasury – on the condition that none of Suncorp’s regional bank branches will be closed or jobs cut across Australia for at least three years.

During the month, Fitch lowered the outlook for Clydesdale Bank plc to “Stable” to reflect weaker profitability prospects from continuing restructuring charges and investments from its transformation strategy that are likely to continue to weigh heavily on costs. Fitch also applied a “Negative” outlook to Coventry Building Society to reflect the agency view that the acquisition of Co-operative Bank plc will involve significant execution risks and would reduce the Society’s capital and leverage buffers over their minimum regulatory requirements. Meanwhile Moody’s raised the outlook for Svenska Handelsbanken AB to “Stable” to reflect the agency view that the high risker profile stemming from the Bank’s very large exposure to the real estate sector will be tempered by its good underwriting practices and strong collateral buffers as well as by its strong capitalisation and stable profitability. In addition, the three main credit rating agencies have withdrawn (or are in the process of withdrawing) their credit ratings of Sainsbury’s Bank plc after the Parent announced the sale of most of the banking business to Barclays plc.