Introduction: UK watchdog to grill bank chiefs over ‘profiteering’ accusations
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s biggest banks are heading for a showdown with the financial regulator today, to explain why UK savings rates are lagging behind the surging cost of mortgages.
Bosses from HSBC, NatWest, Lloyds and Barclays are expected to attend today’s meeting with the Financial Conduct Authority.
The meeting comes amid rising concerns that banks are profiting by offering paltry savings rates to customers, despite 13 increases in UK interest rates since December 2021.
The FCA called the banks in as part of its investigation into the savings market, with a report due later this month. The regulator’s executive director of consumer and competition, Sheldon Mills, who will lead the meeting, also hopes it will focus minds before the FCA’s new consumer duty regulations come into force at the end of July, the Guardian understands.
The new rules will require all City firms including banks to explain pricing decisions, including how quickly they raise savings rates, and show they are acting in good faith and prioritising customer needs.
Critics of the banking sector point out that they have been much faster to raise mortgage costs than to pump up savings rates, as the Bank of England has raised interest rates to their current level of 5%.
This has helped the banks swell their net interest margins (the different between interest paid and interest received) this year.
Instant access savings accounts are a particular concern.
Data from Moneyfacts yesterday showed that the average easy access savings rate today is 2.48%, compared to 4.8% for the average 1-year fixed savings rate.
The average 2-year fixed residential mortgage rate today is 6.51%.
The banks, though, can argue that savings rates are set independently to mortgage products (the latter are priced off the market in UK government debt, or gilts).
MPs are also taking a keen interest in the banks over this issue. Earlier this week the Treasury Committee accused the high street banks of failing in their “social duty” to promote saving and instead engaging in “blatant profiteering” by continuing to offer paltry rates.
Harriett Baldwin MP, chair of the Treasury Committee, said earlier this week:
“With interest rates on the rise and our constituents feeling squeezed by rising prices, it is only right that the UK’s biggest banks step up their measly easy access savings rates.
The time for action is now.”
Mortgage borrowers face more pain in the months ahead, with some experts predicting that two and five year fixed mortgage rates could hit 7 per cent by the end of the summer, the i newspaper reports.
Yesterday, JP Morgan warned that the Bank of England might need to push interest rates to as high as 7% to tackle stubbornly high inflation, in a worst-case scenario.
The agenda
-
8.30am BST: Eurozone construction PMI report for June
-
9.30am BST: UK construction PMI report for June
-
10am BST: Eurozone retail sales for June
-
1.15pm BST: US ADP payroll report on private sector job creation
-
3pm BST: JOLTS survey of vacancies at US firms
Key events
Anxiety over rising interest rates is weighing on shares this morning.
In London, the FTSE 100 index has dropped to its lowest level since late March, down 50 points or 0.7% at 7391 points.
European markets are also in the red, down around 1%.
Investors are digesting the minutes from the U.S. Federal Reserve’s latest meeting, released last night, which showed that Fed policymakers decided to hold interest rates steady at the June meeting to buy time and assess whether further rate hikes would be needed.
This has boosted predictions that America’s central bank will raise rates at its next meeting later this month.
Loving this Bank of England governor interview on @BBCNewsround
Presenter: if you forgot your wallet at home, can you pitch a note or two?
Andrew Bailey: I think that would be a very bad idea
😂
— Victoria Scholar (@VictoriaS_ii) July 6, 2023
A Government minister has said it is “absolutely right” that the Financial Conduct Authority (FCA) is meeting with bank chiefs today to discuss concerns surrounding interest rates for savers lagging behind the cost of mortgages.
Chris Philp, policing and crime minister, said it is “wrong” that some banks “haven’t increased the rates they pay savers commensurately”.
He told Sky News:
“I think the FCA are quite right to call them in and and raise that forcefully.
“We do need banks to behave in a way that’s fair, reasonable and is properly competitive as well.”
Bailey: Inflation will fall, but can’t say when interest rates will be cut
Q: What can children expect as a result of interest rates going up, Newsround asks.
BoE governor Andrew Bailey pledges that the rise in borrowing costs will bring down inflation, saying:
“It’s already started to come down and I expect quite a marked fall in inflation, we’ll notice it.
What we have to do is set the interest rate to get it all the way down to 2%.”
Q: How long will that take?
A very good question, Bailey replies. The Bank currently thinks inflation will fall back to the 2% target towards the end of next year.
Q: When will interest rates come down?
Bailey won’t commit, saying:
“I can’t give you a date as to when interest rates start to come down because that really depends upon what happens over the period of time ahead, but getting inflation down is the most important thing that we have to do.
Andrew Bailey: I know it’s difficult, but inflation is ‘way too high’
You can watch Andrew Bailey’s interview with Newsround here (or show it to the kids later).
In it, the Bank of England governor explains how the BoE has four floors of gold underground, the “second largest store of gold in the world”, and that it’s job is really about money.
He says:
“We make it, we print it, we issue it – we have £80bn of bank notes in issue….
Every day around £750bn of payments get settled through the Bank of England.
Newsround point out that many children are only now learning about mortgages, as their parents are worrying about rising payments.
Q: Are you hearing that kids are struggling at home?
“Yes”, Bailey replies, before defending the current cycle of interest rate increases.
He says:
Inflation is way too high.
We have a target that prices should rise by no more than 2% [per year]. It is, sadly, above that at the moment, above 8%.
I understand it is difficult. People are having to make very difficult choices about what they buy, what they need for their lives.
Q: Are young families dealing with this the most, compared to older people ?
Andrew Bailey says that it’s true, around the world, that younger people tend to borrow more money, while people tend to have more savings more as they get older.
Bailey says he does feel the impact on younger familes, and understands the impact of higher interest rates on people.
It will have more of an effect on young people, younger families. I do understand this.
We want to get inflation back to where it needs to be, and then we can asset what level interest rates should be at.
If inflation isn’t tackled now, it gets worse, he added.
BoE’s Bailey says some retailers are overcharging customers
Bank of England governor Andrew Bailey had fired a warning shot at retailers engaged in greedflation, by warning there is some evidence that retailers are overcharging customers.
Bailey has given an interview to the BBC’s Newsround programme, in which he said there are some issues to tackle on overpricing
The governor said:
If you look at petrol prices, some sellers of petrol have possibly been charging too much for it.
Regulators have an important role to play tackling overcharging, Bailey added.
It helps us with inflation, but it’s just fairer if these things are tackled.
This is having very difficult effects. So it’s important that these steps that can be taken to make things fairer, and to save money for people by doing so, are taken.
Earlier this week, the Competition watchdog said drivers were paying more for petrol and diesel than before the Covid pandemic because of “weakened” competition.
Bailey also warned his audience of young people that chocolate bars are likely to keep rising in price, even if inflation falls, due to the surge in sugar prices.
Today’s meeting between the FCA and the UK banks looks like part of “a co-ordinated political campaign” from the government, says Philip Augar, banking writer and a former non-executive director of TSB.
Augar told BBC’s Radio 4’s Today Programme that the gap between rates for savers and borrowers has become a “hot political topic”, as mortgage rates have risen.
He explains:
The Chancellor had the bank chiefs into the Treasury a few days ago to complain about this issue.
The Treasury committee have expressed their concern. Now the watchdog are getting involved.
Q: But can the regulator actually do anything?
Augar says “it’s quite tough” for them to do things.
This issue is part of the regulator’s consumer duty, a new duty that comes in requiring banks to put the interests of customers first. That comes in at the end of this month..and does give the regulator a bit more power.
What banks will fear is anything compulsory being done, such as a special tax on banking profits, an increase in rules and regulations, or any restitution payments, Augar adds.
Introduction: UK watchdog to grill bank chiefs over ‘profiteering’ accusations
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s biggest banks are heading for a showdown with the financial regulator today, to explain why UK savings rates are lagging behind the surging cost of mortgages.
Bosses from HSBC, NatWest, Lloyds and Barclays are expected to attend today’s meeting with the Financial Conduct Authority.
The meeting comes amid rising concerns that banks are profiting by offering paltry savings rates to customers, despite 13 increases in UK interest rates since December 2021.
The FCA called the banks in as part of its investigation into the savings market, with a report due later this month. The regulator’s executive director of consumer and competition, Sheldon Mills, who will lead the meeting, also hopes it will focus minds before the FCA’s new consumer duty regulations come into force at the end of July, the Guardian understands.
The new rules will require all City firms including banks to explain pricing decisions, including how quickly they raise savings rates, and show they are acting in good faith and prioritising customer needs.
Critics of the banking sector point out that they have been much faster to raise mortgage costs than to pump up savings rates, as the Bank of England has raised interest rates to their current level of 5%.
This has helped the banks swell their net interest margins (the different between interest paid and interest received) this year.
Instant access savings accounts are a particular concern.
Data from Moneyfacts yesterday showed that the average easy access savings rate today is 2.48%, compared to 4.8% for the average 1-year fixed savings rate.
The average 2-year fixed residential mortgage rate today is 6.51%.
The banks, though, can argue that savings rates are set independently to mortgage products (the latter are priced off the market in UK government debt, or gilts).
MPs are also taking a keen interest in the banks over this issue. Earlier this week the Treasury Committee accused the high street banks of failing in their “social duty” to promote saving and instead engaging in “blatant profiteering” by continuing to offer paltry rates.
Harriett Baldwin MP, chair of the Treasury Committee, said earlier this week:
“With interest rates on the rise and our constituents feeling squeezed by rising prices, it is only right that the UK’s biggest banks step up their measly easy access savings rates.
The time for action is now.”
Mortgage borrowers face more pain in the months ahead, with some experts predicting that two and five year fixed mortgage rates could hit 7 per cent by the end of the summer, the i newspaper reports.
Yesterday, JP Morgan warned that the Bank of England might need to push interest rates to as high as 7% to tackle stubbornly high inflation, in a worst-case scenario.
The agenda
-
8.30am BST: Eurozone construction PMI report for June
-
9.30am BST: UK construction PMI report for June
-
10am BST: Eurozone retail sales for June
-
1.15pm BST: US ADP payroll report on private sector job creation
-
3pm BST: JOLTS survey of vacancies at US firms
