The roundup: The UK economy has been rocked by the government's disastrous mini-budget, which triggered the pound to plummet to record lows against the dollar last week and forced the Bank of England to step in to calm markets. We look at the impact on the banking sector and what’s in store for lenders going forward.
Mortgage mayhem: Interest rates are currently at a 14-year high and they could reach almost 6% next year, signaling that the days of banks offering cheap mortgage products could be coming to an end.
Savers being squeezed: Interest rates for savers should climb with the central bank’s base rate rising. But the Financial Conduct Authority is investigating 70 firms over claims they’re not passing on gains to consumers.
Many of the best savings rates are offered by less established lenders and challenger banks, although these are often well below the most recent inflation level of 9.9% for August.
Neobanks can capitalize on their superior rates to pick up new customers. Finding the best savings accounts will become a pressing issue for consumers as the cost of living crisis forces them to rethink their personal finances.
(Source: Bank of England)
Expected results: Despite dropping certain mortgage products and offering modest saving rates, profits at major UK banks are forecast to widen as lenders benefit from higher interest rates.
Incumbent banks are going into this downturn with revenue growth expected and bigger reserves compared to 2008, which should give them a buffer to withstand future turmoil and better handle a recession.
The fortunes of neobanks have been mixed.
With fintech funding shrinking and economic unpredictability reigning, the next few months are likely to weed out weaker neobanks that don’t have the same reserves as incumbents to cushion against a market slump.
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