NatWest, HSBC, Lloyds share prices pop after the BoE decision

London-listed banks diverged after the latest Bank of England (BoE) interest rate decision. NatWest (LON: NWG) share price jumped to the highest level since July 25th while Lloyds soared to July 19th high. HSBC rose to 640p while Barclays stock retreated by more than 2%. 

HSBC, NatWest, Lloyds share prices

Bank of England decision

The biggest economic news on Thursday was the latest interest rate decision by the BoE. In it, the bank decided to leave interest rates unchanged at 5.25%, the highest level in more than 2 decades. 

The decision came a day after the Office of National Statistics (ONS) revealed that the country’s inflation dropped slightly in August. The headline consumer price index (CPI) dropped to 6.7% while the core CPI retreated to 6.2%.

In its decision, the bank said that the pause was needed for it to assess the impact of the previous rate hikes. It also believes that further rate hikes will lead to more weakness in the economy. The statement added:

“Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit.”

The challenge for the BoE is that UK inflation will likely continue rising in the coming months. Brent has already jumped to $95 while West Texas Intermediate has risen to $90. UK petrol prices have jumped to almost 190p per litre.

Delinquency rates are rising

Banks are usually highly sensitive to interest rate decisions. In an ideal situation, banks benefit when interest rates are rising since it leads to higher net interest income (NII). Indeed, all UK banks have seen their NII surge since the bank started hiking rates in 2022. For example, Lloyds Bank had NII of over 13.2 billion pounds in 2022.

However, higher rates have a negative impact on banks. For one, they lead to an economic growth slowdown and more delinquencies. The most recent data showed that UK’s mortgage delinquency rate jumped at the highest pace since 2009. Credit card delinquency rates have also risen.

Additional data has shown that house prices are crashing while consumer spending is easing. Therefore, Lloyds, HSBC, and NatWest share prices jumped because the bank did not decide to hike rates as most analysts were expecting.