Bank of England: UK Businesses not taking advantage of higher interest rates
UK businesses continue to achieve a poor return on bank funds according to the latest data recently released by the Bank of England. The average effective rate reported for deposits and operating bank accounts significantly lags the rises in the Bank of England rate.
The next batch of UK bank profit reports will be released later this month and will show that their net interest margins are continuing to stretch. UK companies are clearly behind the curve and are big contributors to the record profit levels.
A recent survey conducted by Bankhawk and presented at Eurofinance 2023 in Barcelona last week shows the gap between what pricing Treasurers think they should be getting from their banks and what is actually being achieved according to Central Bank data.
Pricing has been improved only by those companies who are actively reviewing their banking structures and renegotiating the way they are structured directly with their banks.
There continues to be a disparity between businesses with optimised banking arrangements and those with sub-optimised legacy banking structures. The latter is unwittingly subsidising the former and feeding enormous bank profits.
The latest statistical release from the Bank of England published in August 2023 shows a slow improvement in the UK banks term deposit rates for businesses but overnight rates lag the Bank of England base rate increases.
The headlines show an increase in the effective rate for sight deposits from 2.34% in July to 2.49% in August and an increase in the effective rate for time deposits from 4.22% in July to 4.48% in August.
Interestingly the Bank of England does not report separately the effective rate for current accounts. In Bankhawk’s experience the return on operating cash (though more valuable to banks than term deposits) attracts very poor returns.
Bankhawk customers can typically achieve a 10X return over 5 years by optimising their banking arrangements using Bankhawk.
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
1. The effective rate for sight deposits increased by 0.15% from 2.34% in July to 2.49% in August.
2. The effective rate for time deposits increased by 0.24% from 4.22% in July to 4.48% in August.
3. The effective rate for loans increased by 0.20% from 6.51% in July to 6.71% in August.
Effective interest rates for: PNFC’s on new deposits and loans
1. The effective rate for time deposits increased by 0.17% from 4.58% in July to 4.75% in August.
2. The effective rate for loans increased by 0.25% from 6.72% in July to 6.97% in August.
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 on 29 Sept 2023