UK Bank Interest Rates Uncovered: Latest Bank of England Statistics
January 2025:
The latest Bank of England data highlights continued concerns for UK businesses: the effective interest rates on corporate banking arrangements remain misaligned with the higher base rates in 2024.
This persistent disparity underlines that businesses can improve profitability by more proactive management of their banking arrangements. In particular it is evident that many UK businesses have legacy banking arrangements that prevents them from benefitting from the higher interest rate environment.
Even though the base rate has been lowered by the Bank of England in recent months market expectations are that interest rates will continue on the high side for the longer term. On 7th January 2025 the yield on the 30-year gilt hit 5.25% and the 10-year rate hit 4.67%.
These movements will have a big impact on corporate cash yields and corporate borrowing costs.
Key Insights from the Latest Data
The Bank of England’s effective interest rates for November, published on 3rd January 2024 reveal a modest rise across various deposit and loan categories:
- Sight Deposits: Rates decreased from 2.68% in October to 2.59% in November. It remains well below the level corporate customers could achieve through more competitive arrangements.
- Time Deposits: Rates fell from 4.36% to 4.28%, reflecting short term market rate declines.
- Loans: Effective rates dropped from 6.75% to 6.61%, indicating lower borrowing costs for businesses. These rates remain high which will be a concern for companies with high borrowings.
The net interest margin for banks remains elevated. Businesses with suboptimal banking structures are unwittingly subsidising bank profits, as legacy arrangements fail to capitalize on available market opportunities.
Addressing the Disparity
The gap between the returns businesses receive on bank funds and the rates they pay on borrowings underscores the need for proactive financial management. Companies actively reviewing and renegotiating their banking relationships achieve significantly better outcomes. For instance, Bankhawk’s benchmarks show that optimally structured banking arrangements can generate significantly improved profitability.
The Path Forward
To mitigate this growing issue, businesses should:
- Benchmark Current Arrangements: Understanding how your effective rates compare to market averages is a crucial first step.
- Engage in Active Negotiation: Leverage data to secure better terms on both deposits and loans.
- Adopt a Proactive Approach: Regularly review and adapt banking strategies to remain competitive.
The latest figures reiterate the importance of taking action now. With banks increasingly profiting from widened net interest margins, businesses must ensure their financial strategies are optimized to safeguard their profitability.
PNFCs deposits and loans
A PNFC is a private non-financial corporation.
Effective interest rates for: PNFC’s on stock outstanding of deposits and loans:
Outstanding facilities
-
- The effective rate for sight deposits decreased by 0.09 % from 2.68% in October to 2.59% in November.
- The effective rate for time deposits decreased by 0.08 % from 4.36% in October to 4.28% in November.
- The effective rate for loans decreased by 0.14 % from 6.75% in October to 6.61% in November.
Effective interest rates for: PNFC’s on new deposits and loans:
New business
- The effective rate for time deposits decreased by 0.08 % from 4.30% in October to 4.22% in November.
- The effective rate for loans decreased by 0.12 % from 6.68% in October to 6.56% in November.
Table: Effective Interest Rates paid/received on PNFC balances by UK MFI’s (excluding Central Bank)
Per cent – Not seasonally adjusted
Source: Bank of England – Statistics – Published January 2025
