NatWest, Barclays, Lloyds share prices sit and wait for BoE decision

Lloyds (LON: LLOY), Barclays, and NatWest share prices have moved sideways this week as investors waited for the upcoming Bank of England (BoE) and Federal Reserve decisions. Barclays shares have been stuck at 142.7p, higher than last month’s low of 128.35p.

Lloyds Bank, on the other hand, was trading at 45.76p, much higher than last month’s low of 39.51p. NatWest, the parent company of Coutts and Royal Bank of Scotland, was trading at 220p, also higher than its November lows.

The biggest banking news of the week will be on the final decisions by key central banks like the Federal Reserve, Bank of England (BoE), and European Central Bank (ECB). These decisions will set the tone for what to expect in 2024.

The three banks are expected to leave rates unchanged since inflation is falling gradually. In the UK, the headline inflation fell sharply in October. Similarly, in Europe, the most recent data revealed that inflation crashed to 2.4% as energy prices slumped.

On Tuesday, another report by the Bureau of Labor Statistics (BLS) showed that the headline inflation dropped to 3.1% in November as goods prices continued falling. Services inflation remained stubbornly high during the month.

British banks are exposed to the actions of the Bank of England, which will start its two-day meeting on Wednesday. Economists see the bank leaving rates unchanged and maintaining its hawkish tone. It will also push back against rate cuts hopes.

Economists at Goldman Sachs believe that the BoE will start cutting rates in August 2024 and then accelerate the pace. The bank will balance between its inflation goals and the slowing British economy.

British banks have had a mixed outcome in this high-interest rate environment. While their net interest income (NII) has jumped, these banks have also seen capital flight as customers moved to high-yielding assets. 

Many customers also withdrew their cash to deal with the high cost of living. In May, customers withdrew over 4.6 billion pounds from banks, the biggest withdrawal since 1997.

At the same time, data shows that delinquencies have jumped in the past few months. A report published on Tuesday showed that mortgage arrears jumped to a six-year high as customers found themselves in a precarious situation.

UK Bank stocks have not done well during the bank’s hiking cycle. Barclays shares have fallen by over 16% since the BoE started hiking rates while NatWest and Lloyds have risen by about 10%.

Barclays vs Lloyds vs NatWest

Barclays has suffered because of its exposure to investment banking, an industry that has gone through substantial challenges in the past two years. The volume of deal-making has slumped by double-digits.

Therefore, there is a likelihood that UK bank stocks will welcome a moderately dovish tone by the Bank of England on Thursday.