Ian and Bill’s monthly review – October

As the dust continues to settle following the Brexit vote, the economic landscape seems to be becoming a little clearer. The Bank of England has loosened monetary policy, including cutting the base rate, to an historic low of 0.25%. Good news for borrowers, especially as the Bank of England has ensured this cut will be passed on to consumers with the launch of the Term Funding Scheme, pumping more liquidity into the economy.

However, this means that margins will continue to be strained for lenders as they become forced to pass on this cut, but cannot reduce pricing on liabilities.  This scenario looks semi-permanent, meaning lenders need to revisit old assumptions in an effort to be as efficient and streamlined as possible to generate acceptable returns. 

Specialist lenders will look to continue their rapid rise by aiming to outflank the major players in the market with this fresh injection of cash. The recent Competition and Markets Authority (CMA) report investigating the UK retail banking sector did not go down well in the specialist lender community. The CMA report did not address the issue of capital requirements when it comes to SME financing, meaning the cards remain stacked in favour of the more established banks. However, this is an area the Bank of England are supposedly looking at addressing, and if they do we may find more levelling of the playing field and a more competitive banking sector in the UK in the wake of Brexit.

As we get closer to the eventual exit of the European Union we may enter another phase of regulatory change. It will be important that we stay ahead of any new regulations and changes to the way we, and the wider financial services industry, works. While things may feel like they have finally been settling down, it won’t be long until we are adapting once more to new ways of doing business.