Shares in Britain’s big banks have tumbled again today as investors fret over the impact of rising interest rates and the looming prospect of loan defaults on the horizon.
The falls come after the Bank of England yesterday decided to push the base rate up by 50 basis points to five per cent, the highest level in 15 years, in order to combat stubborn inflation still ripping through the UK economy.
Higher rates can be a boost to the bottom of line of lenders as they rake in more interest income on lending. However, the prospect of rapid mortgage rate pain and a recession have triggered fears of a wave of loan defaults.
Analysts said that investors seemed to fret over the downside for banks.
“The darker clouds gathering on the economic horizon will have an impact on the number of bad loans they may have to contend with,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, told City A.M.
“Big lenders improved their outlooks during the first quarter, which meant impairment charges were largely lower than expected. With higher rates expected and the risks growing that the UK will head back into recession after all, we may see those impairments rising again, hitting lenders’ bottom lines.’’
She added there was a “clamour” mounting among politicians for lenders to improve the savings rates on offer. Banks have come under fire for failing to pass on higher rates to borrowers while ramping up the cost of borrowing.
Britain’s big lenders have committed to easing the pain of mortgage rates on lenders today after a meeting with Chancellor Jeremy Hunt.