- UK interest rates could hit 6%
- Some banks are offering less than 1% savings rates
- Bank of England hiked interest rates 13 times
UK Chancellor Jeremy Hunt has told the UK high-street banks – Barclays (BARC), HSBC (HSBA), Lloyds (LLOY) and NatWest (NWG) that he expects them to pass on higher interest rates to savers, according to the Financial Times.
Hunt told the Financial Times that ‘it’s an issue that needs to be resolved’ and that he is ‘working on a solution.’
The tough talk didn't appear to dent sentiment towards the sector with most of the mainstream banks up between half a percentage point and 1% on Tuesday. NatWest was the exception with the shares down 0.4% to 230.6p.
Last week, the Bank of England raised interest rates for the 13th time in succession by half a percentage point to 5% once again putting pressure on UK households struggling to meet mortgage payments during this cost-of-living crisis.
Some analysts say further interest rate hikes are on the way which could peak at 6% to curb soaring inflation.
WHERE DOES THIS LEAVE SAVERS?
History has shown that UK high-street banks have been reluctant to pass on the full benefit of rising rates to savers.
Some of the everyday savings’ rates for the UK high-street banks are painfully low.
Barclays is offering its everyday savers 0.85%, Lloyds is offering 0.85% on its easy saver account and NatWest is offering 1.11% on its flexible saver account, for example.
The reason why the UK high-street banks may not be passing on higher savings rates to their customers is because they have previously been ‘crushed due to a prior fall in interest rates’ says banks analyst Gary Greenwood at Shore Capital, ‘and by withholding the benefit of subsequent rate rises from savers banks have been able to re-establish an economic margin on deposits.’
‘As a result of this action, most banks are now earning returns at or above their cost of equity, having struggled to achieve this hurdle previously.’
WHY UK HIGH-STREET BANKS SHOULD HELP SAVERS
Greenwood says UK high-street banks should provide higher savings rates to help with the cost-of-living crisis as a means to boost household income and secondly: ‘it helps in the fight to reduce inflation by ensuring the impact of higher base rates is fed through to depositors thus encouraging saving and reducing spending, this being a more logical argument in our view.’
Disclaimer: The author of the article (Sabuhi Gard) owns shares in Lloyds.
