Banking sector shares decline as Bank of England raises rates by 50bps

Shares of major UK banks took a hit today following the Bank of England’s decision to raise interest rates by 50 basis points. The move has raised concerns for borrowers and added pressure to an already challenging economic landscape.

Barclays, one of the leading banks in the country, saw its share price decline by nearly 2.9%. Standard Chartered and HSBC also experienced losses of around 1.9% at the time of reporting. Natwest and Lloyds were down over 1%.

Investors reacted swiftly to the news of rising interest rates, leading to a decline in share prices for banks. The banking sector, which has been profiting from the upward trend in rates, now faces the challenge of potential difficulties for borrowers in meeting their repayment obligations.

Analysts are apprehensive about the impact of rising interest rates on borrowers’ ability to manage their debt repayments. The concern is that higher rates could lead to an increase in delinquencies and defaults, posing risks to both borrowers and banks.

According to a recent study by the Resolution Foundation, approximately 800,000 borrowers are expected to transition from fixed-rate deals over the next year, resulting in an average annual increase of £2,900 starting from 2024.

While loan arrears and defaults have remained relatively stable so far, early indicators suggest a slight uptick. Data from UK Finance, a banking industry body, indicates a 2% increase in mortgages in arrears of more than 2.5%, totalling 76,630 during the first quarter.

During the same period, repossessions saw a notable jump of 50%, albeit from a low starting point, with 750 homeowner mortgaged properties being repossessed.

In response to the anticipated financial challenges faced by borrowers, policymakers have proposed various measures to support mortgage holders. These measures include considering options such as extending mortgage terms and implementing safeguards to mitigate the impact of interest rate changes on credit scores. The aim is to alleviate the burden on borrowers and ensure the overall stability of the housing market.