Bank of England Eases Quantitative Tightening, Boosting Deposit Growth Prospects

The Bank of England has made a surprise move by slowing down its quantitative tightening process, which should help support deposit growth for UK high street lenders. The bank's main interest rate remains at 3.75%, but it will now reduce its stock of gilts held for monetary policy purposes more slowly, from £488 billion to zero over time. This gentler wind-down means the market has to absorb less government debt, easing a headwind to deposits held within the banking system.

JP Morgan believes this decision will be particularly beneficial for corporate deposits, which it forecasts will grow at 3% to 4% per year to 2028. The broker sees faster growth in corporate lending as well. It describes corporate deposits as an underappreciated source of funding that helps anchor customer relationships and are cheaper for banks since companies keep a larger share of their money in accounts paying no interest.

NatWest is singled out by JP Morgan for its strength in corporate banking. The bank's decision gives further reason to think UK bank shares can re-rate from 7.3 times forecast 2028 earnings towards the European sector average of 9.6 times, according to the broker.