NatWest Believes UK Interest Rates Have Peaked

NatWest believes that interest rates in the United Kingdom have peaked.

The bank said in a Friday (Feb. 17) presentation that it expects that the Bank of England base rate will peak at 4% during the first quarter, remain flat through the first quarter of 2024 and begin to dip beginning around the first and second quarters of 2024.

This follows a steep rise in the Bank of England base rate over the last 12 months, according to the presentation.

The outlook was delivered as NatWest reported its annual results for 2022 and said its operating profit for the year was 5.1 billion pounds (about $6.1 billion), which was up from 3.8 billion pounds (about $4.6 billion) in 2021.

“In a difficult macroeconomic environment, our strong customer franchise, disciplined risk management and robust balance sheet mean we are well positioned to support our customers,” NatWest CEO Alison Rose said when announcing the results.

Reuters reported Friday that despite the bank’s leap in profit, NatWest shares dipped because the bank said its interest margins may stop rising this year.

After delivering its outlook for 2023, the shares slid as much as 9% because that didn’t meet investors’ expectations. One analyst said investors had not expected that the bank’s returns target would remain unchanged or that its anticipated costs would be higher than previously thought, according to the report.

Higher interest rates — and the increasing gap between what borrowers are charged and what savers are paid — hurt borrowers but benefit lenders, the report said.

This report came about two weeks after Santander UK cautioned that macroeconomic challenges in the U.K. could impact credit quality and that it was putting aside more money to cover potential defaults.

Rose said in the NatWest report that, moving ahead, the bank will drive growth by increasing its personalized engagement with customers, providing embedded finance that meets the expectations of consumers’ digital lives and providing financing that supports customers’ moves toward a net zero economy.

These will be supported by the bank’s strong capital position, Rose said.

“It is from this basis of progress and profitability that we are building a platform for growth across the group, accelerating what we’re doing but also being mindful of new opportunities and challenges that we and our customers face,” Rose said.

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