Bank of England Report : Real Trends are Lost in the Detail
Latest Monthly Bank of England Report : Real Trends are Lost in the Detail – Bankhawk
July 2025
The latest Bank of England Statistical Release on effective interest rates covers the period up to 31st May 2025. It highlights that banks in the UK are generating very high interest margins.
For UK businesses that are faced with multiple challenges this hurts their profit margins.
At 2.29% in May effective rates on short term deposits ‘sight deposits’ are well below the Bank of England Rate which was reduced to 4.25% on 7th May 2025.
The usefulness of the data must be questioned as the classification of ‘sight deposits’ is ambiguous and does not appear to account for large balances in current accounts and other non-interest earning bank accounts held by companies.
According to Bank of England explanations ‘Sight deposits (instant access deposits, not including ISAs) are interest or non-interest bearing accounts (be it branch-based, business, online, telephone or postal accounts) where the depositor has access to the entire balance of the deposit, without incurring any penalty, either on demand or by close of business the day following that on which the deposit was made.’
It shows a continuation of the pattern for this year that small movements in short term market interest rates are feeding through to the banks customers but with the banks retaining chunky margins.
Effective interest rates for: PNFC’s on stock outstanding of deposits and loans:
PNFCs deposits and loans
A PNFC is a private non-financial corporation.
The statistics confirm Bankhawk corporate benchmarks and show that most businesses have legacy banking arrangements and accordingly do not benefit from the higher market interest rates of the past couple of years. Those that have bank borrowings have higher interest costs but those that have cash at bank lose more interest margin.
Key Insights from the Latest Data
The Bank of England’s effective interest rates for May, published on 30th June 2025 reveal a modest rise across various deposit and loan categories:
- Sight Deposits: Rates decreased from 2.39% in April to 2.29% in May. This return remains well below the level corporate customers could achieve through more competitive arrangements.
- Time Deposits: Rates fell from 3.92% to 3.81%, reflecting anticipated declines in market rates.
- Loans: Effective rates dropped marginally from 6.32% to 6.18%, 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 legacy banking structures are not benefitting from the higher interest rate environment generally.
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.
Businesses going 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 interest returns on bank funds
- 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.
Outstanding facilities
- The effective rate for sight deposits decreased by 0.10% from 2.39% in April to 2.29% in May.
- The effective rate for time decreased by 0.11% from 3.92% in April to 3.81% in May.
- The effective rate for loans decreased by 0.14% from 6.32% in April to 6.18% in May.
Effective interest rates for: PNFC’s on new deposits and loans:
New business
- The effective rate for time deposits decreased by 0.13% from 3.90% in April to 3.77% in May.
- The effective rate for loans decreased by 0.79% from 6.39% in April to 5.60% in May.
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 June 2025
