The OECD predicts that higher UK Government spending will temporarily lift the UK’s economic growth next year while also warning of accelerating inflation and the “crowding out” of private investment. The OECD has forecast that the UK economy would be one of the best-performing in the G7 next year with a growth rate of 1.7% of gross domestic product (GDP). This is up from a previous forecast of 1.2% and an acceleration from the 0.9% now expected for this year which was downgraded from 1.1% after the UK economy grew by only 0.1% in the third quarter. The OECD expects the UK economy to slow back to a 1.3% growth rate in 2026. However, the OECD praised the UK Government for its plan to invest in productivity-enhancing public investment that would improve growth potential over the long run.
According to the latest Reuters monthly poll of economists, the Bank of England (BoE) will keep Bank Rate on hold in December as global inflation worries resurface. Economists were split on the likely impact that U.S. President-elect Donald Trump’s proposed tariffs – a 10% levy on imports from all foreign countries and a 60% levy on imports from China – would have on the UK economy. Poll medians showed rates falling by 25 basis points every quarter next year, dropping to 3.75% by 2025 year-end.
Moody’s has estimated that the total industry redress cost in relation to the UK regulator probe into historic motor finance sales commission practices by some banks and specialist lenders could reach £30.0 billion. A recent Court of Appeal ruling which upheld claimants’ appeals has potentially widened the scope of the review. In recognition of the potential high volume of complaints following the Court of Appeal judgment, the FCA is consulting on extending the time firms have to respond to consumer complaints.
Chancellor, Rachel Reeves, has promised a reboot of regulation governing the UK’s financial services industry which she believes has shackled the City’s prospects since the global financial crisis and stifled UK economic growth. “The UK has been regulating for risk, but not regulating for growth,” the Chancellor said, announcing that she had written to the Bank of England and the FCA to instruct them to put greater effort towards supporting government growth goals as well as financial stability.
The PRA has published the second near-final policy statement and rules covering the implementation of Basel 3.1 standards for credit risk, the output floor and reporting disclosure requirements. The policy statement is relevant to all PRA-regulated banks, building societies, investment firms and financial holding companies (‘firms’). The PRA has decided to move the implementation date for the Basel 3.1 standards by a further six months to 1 January 2026 followed by a four-year transitional period.
During the month Fitch upgraded the long-term credit ratings of Lloyds Banking Group plc and other rated group-entities with “Stable” outlooks to reflect the Group’s consistent profitability through various economic and interest-rate cycles and its conservative risk profile. Fitch also raised the outlook for the NatWest Group plc and other rated group-entities to “Positive” 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. In addition, Fitch has upgraded the long-term issuer rating of Metro Bank plc and maintained the “Positive” outlook to reflect strategic progress in repositioning the business model (since raising new capital last year) as well as reflecting reasonable prospects for the bank to return to operating profitability.
Meanwhile S&P raised the outlooks for AIB Group plc, Bank of Ireland Group plc and their respective rated group-entities to “Stable” as part of a general rating action on the Irish banking sector to reflect the agency view that, after recording strong profitability over the past quarter, the sector should continue to post solid risk-adjusted returns. In addition, Moody’s raised the outlook to “Stable” for the Bank of New York Mellon Corporation and other rated group-entities to reflect agency expectation that the Group will maintain strong asset quality, robust capital and liquidity, and stable profitability relative to its peers. Moody’s has also placed on review-for-downgrade both Close Brothers Group plc and Close Brothers Ltd to reflect the agency view that the Group faces an increased risk of incurring substantial redress costs primarily related to the non-disclosure of motor finance commissions to customer following the negative outcome of a judicial case against the Group.