The Bank of England’s latest lending data may not set pulses racing, but UBS thinks it gives UK banks more reason to cheer than the market mood suggests.
Despite grumbling about potential new taxes in November’s Autumn Budget, the numbers point to an economy still supporting credit growth and margins.
Loans in August rose 0.5% month on month, with mortgages, consumer credit and corporate lending all moving higher. On an annual basis, growth hit 3.6%, almost double the pace of six months ago.
Corporate lending has been the standout, up nearly 6% year on year. Even with policy rates down by 1.25 percentage points over the past year, mortgage yields are holding 20 basis points higher, helping offset pressure on corporate loan pricing.
Deposits were broadly steady, up 0.2% on the month. Households added to sight deposits, while corporates trimmed theirs, and cash ISAs grew modestly.
Overall deposit rates dipped to 2.09%, reflecting a 30% “beta”: in other words, only a third of the central bank’s rate cuts are being passed through to customers so far. That’s good news for bank margins.
Valuations, though, remain low. UBS puts UK domestic banks on 7.9 times 2026 earnings and 1.2 times tangible net asset value, with a forecast return on tangible equity of 15%.
Barclays PLC (LSE:BARC), NatWest Group PLC (LSE:NWG) and Paragon Banking Group PLC (LSE:PAG) are rated 'buy', while Lloyds Banking Group PLC (LSE:LLOY) and Close Brothers Group PLC (LSE:CBG) sit at 'neutral'.
Among the international names, UBS backs Standard Chartered PLC (LSE:STAN) over HSBC Holdings PLC (LSE:HSBA).
The cloud on the horizon is political. Reports suggest the Chancellor could nudge up the bank levy by 2-3%. UBS calls that plausible, but argues lenders would simply reprice loans and deposits to recoup the cost. For now, the hard data is telling a more supportive story than the headlines.