The UK’s largest banks are set to receive a profit boost of at least £500m as the Bank of England (BoE) prepares to raise interest rates the second time in 10 years.
The BoE governor Mark Carney is expected to announce an increase in the base rate on Thursday, raising it to 0.75%, the highest level since March 2009 as the financial crisis persisted.
Towards the end of last week, market interest rates implied a 90% probable chance of the BoE’s Monetary Policy Committee (MPC) voting to increase the base rate, after it was raised in November 2017.
Pricing consultants Simon-Kucher revealed that a rise in the base rate would deliver an increase of around 3% in annual pre-tax profit for Britain’s largest lenders. In 2017 the UK’s 13 largest banks and building societies reported earnings before tax of £17.5bn, according to City A.M., which would result in a further earnings increase of £520m if rates do rise.
Lloyds Bank and Royal Bank of Scotland (RBS) would experience the greatest net interest income increase, rising by £850m and £650m respectively, per year by 2020 if the MPC announces a 0.25% rate rise, according to separate Barclays analyst estimates. This huge increase is due to the bank’s massive current account deposit businesses, though other lenders will also benefit.
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