Britain’s biggest banks are on track to make billions more this year from rising interest rates, fueling claims they make a profit on at the expense of savers.
Major lenders have been accused of failing to pass through a series of recent Bank of England rate hikes to savings accounts, while ramping up mortgage and other borrowing costs, leading to higher profits.
City analysts expect NatWest, which was bailed out by taxpayers during the financial crisis, to earn nearly £12bn in net interest income – the difference between what they pay savers and charge borrowers. That is € 2 billion more than last year.
Lloyds Banking Group, Britain’s largest lender and owner of the Halifax brand, will bring in nearly £14bn, almost £1bn more than a year ago.
Inflation battle: Base rates have soared as the Bank of England battles inflation, but savers have not seen as big increases as borrowers
Both will report results later this month. The Mail on Sunday and This is Money recently revealed that the top six lenders earned £44bn in net interest income last year, which was £8bn more than the previous year.
But the latest forecasts indicate it will be an even bigger bonanza this year as the cost of borrowing continues to rise, with interest now expected to peak at more than six percent.
It comes as ministers brace themselves for the latest inflation data. Figures out this week are expected to show that the pace of price increases has slowed to about 8 percent in June.
That would still be well above the bank’s target of 2 percent – jeopardizing Prime Minister Rishi Sunak’s pledge to cut inflation in half by the end of this year.
The Bank is poised to raise rates again next month – from the current level of 5 percent – to curb persistently high inflation, which is rising to 8.7 percent.
That will add further misery to homeowners, with nearly a million of them facing an additional £500 a month in repayments when their cheaper fixed rate deals end, the Bank believes.
The typical cost of a two-year fixed-rate mortgage has risen from 3.8 percent a year ago to 6.8 percent, according to financial experts Moneyfacts.
But the interest on instant savings accounts has only risen from 0.5 percent to 2.6 percent in that time.
The widening gap has enabled banks to reap huge profits. Experts say that banks’ profits are highly sensitive to changes in interest rates.
For example, according to investment bank JP Morgan, Barclays earns an additional £170 million for every quarter-point increase in base rates.
It has warned that banks’ “supernormal profitability” raises the risk of the government imposing a windfall tax.
MPs and regulators are investigating the usury claims and encouraging savers to look for better rates.
Bank of England Governor Andrew Bailey last week urged lenders to pass on interest rate hikes to savers, saying they were financially strong enough to compete and offer better deals.
“The resilience of the banking system does not constrain banks to manage their net interest margins, and thus manage the rates they pay to savers and the rates they charge on mortgages,” he said.
Treasury Secretary Jeremy Hunt has also backed calls for banks to offer customers better returns.
But Harriett Baldwin, chair of the House of Commons Treasury Select Committee, which is investigating the lenders’ ploy, said: “While it is positive to see some companies responding to our continued pressure, the easy access rates High Street banks are offering lag behind and are significantly lower than the base rate.
‘Banks must now go a step further and warn customers where better products are available.’
However, lenders deny charging rip-offs, saying margins of about 3 percent have only recently recovered to pre-pandemic levels.
There are also signs that savings rates have improved after bank and mortgage bank bosses were recently summoned to visit the Financial Conduct Authority, the industry’s regulator.
But David Postings, chief executive of the UK financial trade organisation, was accused of being ‘completely out of touch with reality’ by Labor MP and selected committee member Angela Eagle after saying in the Daily Mail yesterday that bank margins were ‘not at all exorbitant ‘.
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