A shot across the bow

Generally speaking, you know it’s serious when someone who is detested says something loud and proud to reduce them even further in your estimation. Think a train company that says customers need to be grateful that the service is now running on time after cancelling 30% or more of the services, and offers a reduced timetable! Or maybe a businessman that leaves pensioners in the lurch and demands people should not stare as it upsets him…

Image of a graph, in front of a city backdrop with the silhouette of a businessman

This week, the media has reported that NatWest / RBS (71%+ government-owned) have warned business customers that they may charge for taking deposits. Now bankers are not the most popular breed at the moment (as your clients probably remind you on a regular basis), so why add to the antagonism….? They would have anticipated how the media would run with this and then ask the question whether private customers would be next, causing significant anxiety and making them even less popular! Now call me cynical, but I feel this was aimed straight at Bank of England boss Mark Carney. As I said in my last blog. Carney stated in his post Brexit speech that he was not convinced that lower interest rates were necessarily the right course of action to stimulate credit creation. However, the market appears to be discounting a cut to interest rates next month.

The banks clearly do not want lower interest rates as it would pressurise their margins even further. To be fair to them, if they can not attract deposits or other ways of wholesale funding then they can not lend, so I do have sympathy there - not a popular view I know…

So why now and why RBS? Is the Treasury at work here trying to indirectly influence the Bank of England? Is this political interference via the back door? Barclays, HSBC and Lloyds will all be watching with interest – did they know this was coming out? Without getting too much into conspiracy theory territory – although it is fun – what does this mean for interest rates? Will the Bank of England actually cut later this summer?

I have no greater insight than anyone else, but I feel the chance of a cut is receding. Sterling seems to have found a new level and is relatively stable. Confidence, whilst not euphoric, does seem to be less apocalyptic than in the immediate aftermath of the Brexit vote. My bet – the MPC wants to hold the line and maintain rates where they are, and the banks want to make sure of it.

One thing I am sure of, banks will not charge customers to hold deposits with them. They will announce this later in the summer and state they never had any intention to charge private customers. We will all be grateful and want to go out and hug a banker.

Now for the train managers…..

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