U.K. Banking Stocks Jump as BOE Rate Hike Signals Profit Boost

(Bloomberg) --

Shares in U.K. lenders gained after the Bank of England hiked interest rates for the second time in three months, signaling a further boost to profits on lending. 

Barclays Plc jumped as much as 3.2% in London, while peers Lloyds Banking Group Plc and NatWest Group Plc both added as much as 2%. The FTSE 350 Banks Index rose to the highest intraday since February 2020, extending this year's rally to 18%.

The move for banks came as the U.K.'s central bank lifted its main rate by 25 basis points and said four members of its nine-person committee had wanted to raise rates by 50 basis points, signaling further hikes will likely follow as it tries to rein in inflation. 

A tightening of central bank policy is seen as critical to boosting profits for the banking sector after rates were slashed in order to stem the economic damage of the Covid-19 pandemic. Analysts at Barclays said this week that the big U.K. lenders have passed almost none of December's rate hike on to customers in the form of higher interest on savings accounts, resulting in a likely bigger benefit to banks' earnings. 

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“The number of members in favor of a double rate hike is a surprise” Emma Mogford, a fund manager at Premier Miton Investors, said by email, “They have signaled there will be a number of rate rises in the next 12 months, which is good news for U.K. banks.”

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