Predicts four interest rate decreases in the UK and discloses its most pessimistic energy tariff prediction scenario for Barclays
In a surprising move, Barclays anticipates the Bank of England to slash interest rates a whopping four more times, echoing concerns about a gradually weakening economy.
According to Barclays' latest projections, the BoE will implement three more rate cuts in 2025 and one more next year, bringing the base rate down to 3.5 per cent by the end of 2026. This optimistic 'baseline scenario' predicts an unremarkable 1 per cent growth for the UK economy this year, followed by lukewarm GDP expansion of just 1.4 per cent over the subsequent four years.
The banking titan expressed concern over global economic stability, citing 'gradually slowing' growth and ongoing uncertainties, particularly in the US. In its 'downside' scenarios, Barclays anticipates the UK economy contracting by 1.3 per cent this year and shrinking further by 2.8 per cent in 2026.
Uncertainty in the US is driving the bank's heightened concerns, with US President Donald Trump's controversial tariffs adding fuel to the fire. The lender warned of intensified layoffs and rising unemployment rates due to these measures.
Barclays saw a 19% increase in pre-tax profits to £2.72 billion for the first quarter, mainly due to improvements in its America operations. The bank also beefed up provisions for potential loan defaults to £643 million, with a large portion earmarked for addressing US macroeconomic risks.
Barclays' best-case forecast suggests a steady but uninspiring economic trajectory, while the 'downside' forecast points to a two-year contraction. However, the bank's optimistic stance on delivering its target financial returns highlights its resilience amid macroeconomic uncertainty.
Barclays' shareholders were reassured by the bank's adaptive strategy, with shares rising 1.64 per cent in early trading. Despite the challenges, the bank remains committed to delivering its previously announced financial and distribution targets for 2025 and 2026.
While rate cuts could offer temporary relief to borrowers, there's a fine balance to strike between stimulating growth, restraining inflation, and maintaining lender profitability. The economic impacts of rate cuts are complex, with potential benefits to housing affordability, consumer spending, and exporters, but also risks of increased inflation, weakened financial sector stability, and higher import costs.
- In light of Barclays' prediction, encouraging more mortgages might be an enticing strategy for banks, as the lower interest rates could potentially increase borrowing and stimulate the housing market.
- Conversely, the slower economic growth could strain savers, as reduced GDP expansion might lead to fewer opportunities for investments and lower returns on savings.
- In a bid to offset potential losses from loans, Barclays has set aside significant provisions for loan defaults, especially in the US, which has been a source of economic uncertainties.
- In the face of uninspiring economic growth, businesses might find it challenging to secure funding, which could hamper their ability to expand and invest in new opportunities.
- As Barclays gears up to deliver its financial and distribution targets by 2025 and 2026, its focus on resilience in the face of macroeconomic uncertainties could serve as a model for other finance institutions in the coming years.
