Pass on higher rates to savers, Bailey tells banks
Pass higher interest rates on to depositors, Bank of England boss Bailey tells banks… as spat over savings flares up
Bank of England Governor Andrew Bailey has called on lenders to pass on interest rate hikes to their depositors – amid claims they made a profit.
Speaking after the release of bank stress tests, which gave lenders a clean bill of health, Bailey made it clear that the companies were financially strong enough to compete and offer better deals.
Banks have come under fire for implementing meager rate hikes offered to savers with access to interest, while driving up borrowing costs, leading to bigger profits.
Treasury Secretary Jeremy Hunt has backed calls to offer better returns.
Bailey said yesterday: ‘It’s important that the tariffs are passed on.
Plea: Speaking after the release of bank stress tests, Andrew Bailey, Governor of the Bank of England (pictured), made it clear that the companies were financially strong enough to offer better deals
‘It is also important that we have competition in the banking sector, which encourages banks to compete on savings interest.
“A more resilient banking system will be able to compete.
“They have been left behind by the need to achieve financial stability.”
The Bank’s stress tests showed that all eight of Britain’s major lenders had enough capital to face a fictitious doomsday scenario in which house prices fall by almost a third and unemployment skyrockets.
Major UK banks’ capital and liquidity positions remain robust and profitability has increased, enabling them to both improve their capital position and support their clients.
Bailey said robustness meant lenders didn’t have to overcompensate by building up a large net interest margin, which is the gap between borrowing and savings rates that is an important measure of profitability.
“The resilience of the banking system does not constrain banks to manage their net interest margins, and thus manage the rates they pay to depositors and the rates they charge on mortgages,” the governor said.
The Bank of England reference rate has risen from 0.1 percent in December 2021 to 5 percent today.
Lenders predict it will hit 6.4 percent later this year.
And they have responded by raising lending rates.
According to the latest figures from yesterday’s financial website Moneyfacts, the average interest rate on a two-year fixed-term mortgage deal is 6.7 percent, which is higher than the level seen in the wake of Liz Truss’ disastrous mini budget last fall.
Yet savers are left with easily accessible savings rates of just 2.55 percent.
Rises: The Bank of England benchmark rate has risen from 0.1% in December 2021 to 5% today and lenders predict it will reach 6.4% later this year
Banks point out that better deals are available for accounts that lock money for a period of time.
The latest figures show a typical rate of 4.95 percent on a one-year savings agreement.
But that hasn’t silenced the chorus of calls for them to do better by millions of customers seeing the value of their nest eggs eroded by inflation.
MPs on the House of Commons Treasury Committee have been scrutinizing banks on the issue since earlier this year, but complained last week that rates still seemed ‘too low’.
They noted that rates on easily accessible savings accounts at the four major banks were between 0.9 percent and 1.7 percent.
The MPs questioned whether customers were being paid a fair price or were instead being ‘exploited’ for their loyalty.
Hunt last month accused banks of procrastinating on the issue and vowed to take action to get a better deal for depositors.
He said he had told bank bosses “in no uncertain terms” that it was taking “far too long” to pass on increases in the Bank of England’s base rate.