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If persistent inflation forces BoE officials to remain hawkish for longer, British banks’ profitability risks being hit by mortgage defaults and falling deposits. Price pressures have proven more persistent in Britain than elsewhere in Europe and the U.S., prompting traders to expect interest rates to peak above 6%, weighing on borrowers and hitting property.
British banks “face the double threat of rising interest rates”, analysts at Italian bank Mediobanca said, with recession bets weighing on sentiment, while a hike could hit mortgages and prompt customers to withdraw money from savings . UK domestic bank shares reflected the pessimism. While the FTSE 350 Bank Index is up 9% for the year, the gains have come mostly from international banks, while Britain’s Barclays, NatWest and Lloyds have all posted losses.
