Achi news desk-
READ MORE: Bank rate setter says now ‘more confident’ about UK inflation
Higher interest rates help maintain profit margins in commercial banks by widening the gap between what they pay savers and what they charge borrowers. The UK banking sector ends in 2023 which saw earnings peak as borrowing costs rose.
News earlier this week that wage growth continued to outpace the fall in the inflation rate has prompted analysts to warn that the Bank of England may delay the interest rate cuts many expected to start in June .
KPMG’s head of banking, Peter Rothwell, said the sector may have reached a short-term profitability peak and while earnings are expected to remain fairly healthy in 2024, they are expected to be lower than last year.
READ MORE: Interest rate cut hopes pushed back after slower-than-expected fall in inflation
“While any delay to rate cuts should provide some support to net interest income, the weak UK economy is likely to hamper growth,” Mr Rothwell said. “Results could reflect how higher rates and ongoing cost of living challenges affect credit quality, which has so far proven resilient.
“Given the challenging environment, we can expect a continued focus on costs throughout 2024, while recent consolidation in the sector could continue.
“It will also be interesting to see the extent to which earnings have been boosted by investment banking and trading operations, in line with the first quarter results of their US counterparts.”
