Bank Industry Insights: July 2024 edition

In the aftermath of the UK's recent general election, focus has shifted to the Treasury's strategy for managing the nation's economy. The newly appointed Chancellor has expressed concerns regarding the state of the UK's public finances, describing them as being in the "worst state since [the] Second World War". Adding to this, the Bank of England's chief economist remarked this month on the persistence of inflationary pressures, despite the recent drop to 2% in May (in line with targets set). Notably however, the service sector and wage growth figures have continued to hover around 6%. Current data suggests that inflationary pressures may have been mitigated, leading to questions of when, rather than if, bank rates will be cut going forward.

Across the Atlantic, the Federal Reserve Chair, Jay Powell, has indicated that the central bank has made "considerable progress" towards curbing inflation. The latest reports show a decrease in inflation to 2.6% in May, however Powell noted that "more good data" would bolster confidence that achieving the Federal Reserve's 2% inflation target is achievable.

The European Central Bank (ECB) had recently reduced interest rates to 3.75% in June, outpacing its counterparts in the US and UK. However, recent disclosures reveal a degree of uncertainty among European policymakers and council members, as inflation and wage trends diverge. These concerns have tempered expectations, suggesting that interest rates may remain unchanged in the near term. Despite this, market predictions indicate the possibility of two additional quarter-point rate cuts within the current year.

The UK has announced its biggest overhaul of the listing regime in decades. The new rules give more power to company bosses to make decisions without shareholder votes, as well as giving flexibility for companies to adopt dual-class share structures which allow for stronger voting rights to company founders and institutional investors (over that of their ordinary shareholders). With the rules coming into force from 29 July 2024, the Chancellor remarked that such changes represent "a significant step towards reinvigorating [the UK's] capital markets", allowing the UK to keep inline with international counterparts (such as New York).

As we conclude this month's commentary, we invite you to read the latest editions of our Financial Services SpeedRead (July 2024 edition and our specialised Germany edition). If you are on the move, how about taking a listen to our latest regulatory enforcement mini-series podcast, where we discuss the Senior Manager and Certification Regime.