Slower Bond Sales Boost Hopes for UK High Street Lenders

The Bank of England's decision to slow down its bond sales is expected to benefit high street lenders, according to JP Morgan.

The bank kept its main interest rate at 3.75% and surprised markets by altering its quantitative tightening plans. It will now reduce its £488 billion gilt holdings over time, but at a slower pace than initially planned. The annual reduction will be around £46 billion per year until 2034.

This gentler wind-down is expected to ease pressure on the market as it absorbs less government debt. As a result, JP Morgan believes that deposit growth across the UK banking system will be supported. Corporate deposits are expected to grow at 3% to 4% annually to 2028, alongside faster growth in corporate lending.

NatWest is highlighted by JP Morgan as a strong performer in corporate banking. The bank's decision gives further reason to think that UK bank shares can re-rate from their current level of 7.3 times forecast 2028 earnings towards the European sector average of 9.6 times.