Shares in NatWest Group (NWG) and Lloyds Bank (LLOY) were in demand on Wednesday following the release of the latest UK inflation figures.
These suggest that the monetary policy committee will raise interest rates at their next meeting on Thursday 16th December. Shares in Lloyds Bank and NatWest Group were trading 1.4% and 1.52% higher at 50.69p and 226.8p respectively.
The CPI (consumer price index) which measures the average change in prices over time that consumers pay for a basket of goods and services, rose to a near 10 year high of 4.2% in October from 3.1% in September and is likely to increase further during the rest of the year.
RATE HIKE IMMINENT
Shane O’Neill, head of interest rate trading for Validus Risk Management said: ‘This higher-than expected print will give the Bank of England incentive to increase interest rates at their next meeting in December.’
‘After yesterday’s strong employment data, the missing piece of the puzzle according to Governor Bailey, there is seemingly little reasons to expect the Bank not to hike’.
Banks are beneficiaries of a rise in interest rates as it enables them to increase their net interest margins. This is the difference between the rate at which banks can borrow and lend money.
Research by Numis banks analyst Jonathan Pierce has modeled the impact of a 65 basis point increase in interest rates upon the profitability of the major UK banks.
Nat West Group is the greatest beneficiary with a 23% increase in 2023 forecast pre-tax profit, followed by Barclays with a 10% rise, and then Lloyds with a 8% uplift.
