BoE governor warns government against watering down bank ringfencing rules
Bank of England governor Andrew Bailey has warned MPs that watering down post-2008 financial crisis bank ringfencing rules would be bad for British households, and would not help banks either.
Testifying to the Treasury Committee this morning (highlights start here), Bailey insists that there isn’t a trade-off between financial stability and growth in the economy.
He reminds MPs that Parliament created a great deal of detail when they legislated the ringfence rules after the financial crisis. Perhaps some of that detail could be improved, but he insists the ringfence mustn’t be torn up.
Ringfencing protects UK retail banking from shocks originating elsewhere in the group and in global financial markets.
Last week, chancellor Rachel Reeves promised “meaningful” reforms to the UK’s ring-fencing rules, prompting warnings from some of the architects of the UK’s post-2008 reforms.
Today, Bailey says the ringfence rules are an important part of the structure of the financial system. Crucially, he explains, they make it easier to resolve a failing bank.
He tells MPs:
“It has benefits, particularly, in terms of UK customers and UK consumers; businesses and households. I think that is a helpful feature of it. I don’t think it hinders banks fundamentally in terms of their business models.
“Again, at the margins, I am sure there are things that can be improved and we will work constructively to go through that process.
“It has established itself as part of the system and to me it would not be sensible to take it away at this point.”
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Updated at 11.11 BST
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BoE governor questions need for digital pound
The Bank of England governor has cast doubt on whether the UK’s central bank will introduce a digital currency, having worked on the project for several years.
Andrew Bailey told the Treasury committee that he would need “a lot of convincing” to push through the plan, if existing work to push digital technology into the commercial bank payment systems is a success.
He tells MPs that the BoE will work with banks and the market to develop digital technology in the commercial bank payments systems, particularly the faster ones, which are the main payment systems of the country.
Bailey explains:
That’s a sensible place to do it because that’s where most of our money is.
My view is, if that’s a success I quesion why we need to introduce a new form of money.
Bailey says improving commercial banks’ digital payments systems could lead to “huge benefits”, such as smart contracts, reducing fraud, reducing costs, and improving late payments to small firms.
This could be the best way to get digital technology into the payments system, he suggests, compared to the alternative of a retail central bank digital currency (CBDC, or digital pound) or the growth of stablecoins (eg non-bank money).
Bailey insists he is “not saying no” to a CBDC, but adds:
If the work with the commercial banks is successful, I would need a lot of convincing that the use case was made.
Bloomberg reported this morning that Bank of England officials are mulling whether to set aside plans to create a digital pound for households amid growing skepticism about the project’s benefits.
Bailey also reminded MPs that China has launched a CBDC, while the European Central Bank is pressing ahead with its plans for a digital euro.
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Updated at 11.41 BST
Bailey: Success in financial stability is when nothing happens
Q: Do you have red lines about the deregulation of UK financial rules, governor?
Andrew Bailey says he has two very strong red lines.
1) he repeats that there isn’t a trade-off between financial stability and growth
2) he shows exasperation about people who say the financial crisis is deep in the past, and solved, so we can move on.
Summing up the challenge of protecting the UK financial system, Bailey says:
Success in financial stability is when nothing happens. The fact we’ve had market volatility this year and we haven’t had a financial stability problem, we’re not worrying about banks failing or worrying about the markets, is of course a success.
Bailey then declines to back Rachel Reeves’s comment that regulation is acting as a “boot on the neck” of financial firms, saying:
“I don’t use those terms, let me say that… It is not a term I use.”
Q: But is there a problem with overregulation of financial services firms?
Bailey repeats that the Bank is open to looking at the rules, but insists:
We can’t compromise on basic financial stability. That would be my overall message.
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BoE governor warns government against watering down bank ringfencing rules
Bank of England governor Andrew Bailey has warned MPs that watering down post-2008 financial crisis bank ringfencing rules would be bad for British households, and would not help banks either.
Testifying to the Treasury Committee this morning (highlights start here), Bailey insists that there isn’t a trade-off between financial stability and growth in the economy.
He reminds MPs that Parliament created a great deal of detail when they legislated the ringfence rules after the financial crisis. Perhaps some of that detail could be improved, but he insists the ringfence mustn’t be torn up.
Ringfencing protects UK retail banking from shocks originating elsewhere in the group and in global financial markets.
Last week, chancellor Rachel Reeves promised “meaningful” reforms to the UK’s ring-fencing rules, prompting warnings from some of the architects of the UK’s post-2008 reforms.
Today, Bailey says the ringfence rules are an important part of the structure of the financial system. Crucially, he explains, they make it easier to resolve a failing bank.
He tells MPs:
“It has benefits, particularly, in terms of UK customers and UK consumers; businesses and households. I think that is a helpful feature of it. I don’t think it hinders banks fundamentally in terms of their business models.
“Again, at the margins, I am sure there are things that can be improved and we will work constructively to go through that process.
“It has established itself as part of the system and to me it would not be sensible to take it away at this point.”
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Updated at 11.11 BST
Bank of England governor Andrew Bailey then reminds MPs about the surge in certain tech stocks this year, to explain the rebound in markets since their April wobble.
He tells the Treasury committee:
Here’s a striking fact. The market cap of Nvidia is now larger than the UK’s GDP.
Nvidia’s shares are up 27% so far this year, giving it a market capitalisation of $4.18tn (or £3.1tn), thanks to strong demand for its high-powered chips to power artificial intelligence systems.
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Q: Why have US and global equities bounced back from the initial shock of Donald Trump’s tariffs?
FPC committee member Professor Randall Kroszner replies that it is always “very difficult” to assess market movements (indeed!).
One factor is that the markets weren’t expecting the level and the breadth of the tariff proposals which Trump announced on 2 April, even though the president had talked about them before.
It was then “very helpful for the market” that the president pushed back the date when tariffs will come in, and offered more flexibility for negotiations, Kroszner adds.
[that’s a polite way of pointing to the TACO trade]
Kroszner also points to the passing of the president’s budget bill, which extends previous tax cuts to investment. That has supported investment in the US.
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Q: are there any elements in the Leeds reforms that make you nervous, in terms of financial stability?
FPC member Randall Kroszner says the committee will weighs up the costs and benefits of the measures, to assess the impact.
He doesn’t see “a necessary clash” between the reforms and financial stability, but it will depend on the detail of what is changed.
Kroszner also points to risks from the non-bank financial sector.
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Updated at 10.47 BST
Undermining financial stability would hurt growth agenda, government warned
Two Bank of England policymakers have warned the government against undermining the financial system through its deregulation push.
Professor Randall Kroszner, external member of the Bank’s Financial Policy Committee, told the Treasury Committee that it is important to maintain resilience in the financial system.
Asked about the “Leeds reforms” announced by Rachel Reeves last week, Kroszner says that snything that challenged that stability would be a red line, (but he doesn’t have any concrete examples of concerns).
Kroszner explains that undermining financial stability would hurt the government’s growth agenda, saying:
“If you don’t have financial stability it is going to be a major challenge to have economic growth”.
Reeves’s package of measures, unveiled in Yorkshire, include cutting out “unnecessary” red tape and encourage more financial risk-taking by companies and consumers.
Fellow FPC member Carolyn Wilkins points out to MPs that “a lot of the reforms” made since the great financial crisis of 2008 have worked out well, as illustrated by the stresses which the banking sector has experienced since without collapsing.
Wilkins adds:
“There are ways we can look at those regulations and maybe simplify them, maybe alter them in some way, and still achieve a very good financial stability outcome, with more efficiency”.
Part of the FPC’s work is looking at specifically how that can happen to help the growth agenda, Wilkins explains.
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Updated at 10.43 BST
BoE governor: Uncertainty pushing up long-term borrowing costs
Over in parliament, the Treasury Committee are starting to question members of the Bank of England’s Financial Policy Committee (FPC) on financial stability.
As well as governor Andrew Bailey, two external members of the FPC, Randy Kroszner and Carolyn Wilkins, will also give evidence to the Committee.
The committee asks Bailey about the rising cost of government borrowing….
Bailey replies that the cost of long-term borrowing has risen, globally. It’s not unique to the UK, and there have been steeper rises elsewhere.
These moves are being driven by increased uncertainty, particularly around trade policy, Bailey explains, and also by global uncertainty around fiscal policy.
He says:
“It is greater uncertainty, clearly. On two fronts: one is uncertainty around what is going on in trade policy at the moment. The second thing is uncertainty globally around fiscal policy. That’s again a global phenomenon.”
If you look over the last decade, Bailey adds, there has been a shift towards greater government borrowing but a smaller increase in business and personal borrowing.
Q: Are you unconcerned?
Bailey says the moves reflect conditions, both in geopolitics and on pressure on fiscal policies.
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Updated at 10.39 BST
Britain’s manufacturing sector contracted last year, new sales figures show.
The total value of UK manufacturers’ product sales fell byy 3.1% in 2024, to £452.2bn, the Office for National Statistics reported.
That included a 2.4% drop in motor vehicle sales.
The ONS reports that the manufacturing of fresh or chilled cuts of beef and veal showed the largest value increase, up by £964million or 18.6% to £6.2 billion.
Other products showing noticeable increases were beer made from malt, which increased by £793m (17.1%) in 2024 to £5.4bn, and ‘aeroplanes, helicopters or unmanned aircraft’, which rose by £527m (7.8%) to £7.3bn.
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OBR: Borrowing since April is in line with our forecasts
Britain’s fiscal watchdog isn’t panicking about the jump in government borrowing in June.
The Office for Budget Responsibility points out that borrowing in the first three months of this financial year (April to June) is “exactly in line” with its forecast in March, at £57.8bn.
Central government receipts and spending are both broadly in line with the forecast profile, the OBR point out, adding:
In the monthly profile consistent with the forecast in the March Economic and fiscal outlook we expect lower borrowing in the second half of 2025-26 relative to 2024-25.
This is based on a sharp expected rise in capital gains tax around the end-January due date, lower debt interest payments in the second half of the year, and lower central government net social benefits which were unusually backloaded last year.
Borrowing in line with forecast in first quarter of 2025-26 – our monthly commentary on the public finances will be published later this morning 📊 pic.twitter.com/d8h3FZVEey
— Office for Budget Responsibility (@OBR_UK) July 22, 2025
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Neil Wilson, UK investor strategist at Saxo, fears UK government bonds could come under attack this summer, saying:
The British government’s borrowing rose more than expected in June – second-highest since records began in 1993 for the month…tax hikes are coming.
Gilt yields rose with the 30-year jumping after sliding on Monday – we’re not yet back to yesterday’s highs so nothing to get jumpy about. But I do worry that we could see bond vigilantes hit gilts this autumn.
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FTSE 100 hits new intraday high
Despite the gloomy UK borrowing data, the London stock market has hit a new record peak this morning.
The blue-chip FTSE 100 index jumped to 9025 points in early trading, a day after closing above the 9,000 point mark for the first time.
The rally was led by food services group Compass, which raised its profit forecast for this year and announced the acquisition of European premium food services business Vermaat Groep. Compass’s shares are up 4.2%.
They’re followed by Centrica (+4%), following this morning’s confirmation that it is taking a 15% stake in the Sizewell C nuclear power station.
Mining stocks are rallying too, lifted by higher commodity prices.
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FCA warns insurers to stop poor practices
Lauren Almeida
Insurers need to improve the way they handle home and travel claims, the financial regulator said this morning.
The Financial Conduct Authority has uncovered “concerning evidence” of poor practice among some home and travel insurers, which has led to delays in settling claims and high numbers of complaints. There has been a “lack of oversight of outsourced services” in some cases, the regulator said, as well as “insufficient management information”.
The FCA also found high rejection rates for storm damage claims, with only 32% of claims in its sample receiving a payment in 2024. The regulator also found cases of cash settlements being used “without sufficient consideration of whether they are most suitable”.
The watchdog is also reviewing high premiums in the car insurance industry, although it found the rise in costs has been driven by factors largely outside insurers’ control, such as higher prices for cars, parts, labour and energy. The cost of hire vehicles, as well as the number and cost of theft claims and uninsured drivers, have also risen significantly, it said.
However, it found evidence in the car insurance market that referral fees from credit hire firms and claims management companies were “associated” with slower claims processing and higher costs.
Sarah Pritchard, deputy chief executive of the FCA, said:
“External cost pressures are primarily to blame for recent motor premium increases, not increased firm profits, but there is some more work to do on claims handling, particularly in home and travel.
That’s why we’re stepping up – making sure claims are handled promptly and fairly and pushing for a coordinated effort to tackle the root causes of rising motor premiums.
A well-functioning insurance market helps consumers navigate their financial lives and supports growth by building people’s resilience to financial and personal shocks.”
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UK bond yields rise after jump in borrowing
UK bond prices are weakening, which pushes up the cost of borrowing, as traders digest this morning’s public finances report.
The yield, or interest rate, on 10-year UK bonds has risen by two basis points (0.02 percentage points) to 4.634%.
Longer-dated, 30-year, bond yields have risen by almost three basis points to 5.463%, towards the 27-year highs above 5.5% reached in April.
Yields rise when bond prices fall. Although these are small moves, they add to the pressures on the UK public finances, as higher borrowing costs eat into Rachel Reeves’s limited headroom against her fiscal targets.
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UK grocery inflation jumps to 5.2%
More bad news: UK grocery inflation has jumped to its highest level since January 2024, as the cost of living squeeze intensifies.
Data provider Worldpanel by Numerator, has reported that grocery inflation accelerated in the last four weeks, to 5.2% year-on-year. That’s up from 4.7% in the previous month.
Fraser McKevitt, head of retail and consumer insight at Worldpanel, says the annual cost of household shopping is rising sharply:
With the average household spending £5,283 each year at the grocers, this latest rise could add £275 to bills if people’s shopping habits stay the same.
Just under two thirds of households say they are very concerned about the cost of their grocery shopping, and people are adapting their habits to avoid the full impact of price rises. Own label products, which are often cheaper, continue to be some of the big winners and, in fact, sales of these ranges are again outpacing brands, growing by 5.6% versus 4.9%.
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Updated at 09.03 BST
What the experts say: Higher taxes likely
Despite public borrowing overshooting official forecasts by £3.6bn in June, to over £20bn, borrowing is still in line with the OBR’s forecasts after the first three months of the fiscal year, points out Alex Kerr, UK economist at Capital Economics.
But… Kerr fears things will probably get worse for the Chancellor, forcing her to raise between £15-25bn at the Budget later this year, probably mostly through higher taxes.
Kerr told clients:
Admittedly, the better-than-expected start to the fiscal year means that borrowing is still on track to meet the OBR’s existing forecasts after the first three months of the 2025/26 fiscal year.
But the government’s u-turns on spending cuts and potential upward revisions to the OBR’s borrowing forecasts means the Chancellor will probably need to raise £15-25bn at the Autumn Budget to maintain the £9.9bn of headroom against her fiscal mandate.
And given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate significant increases in borrowing, she will probably have to raise taxes instead.
A chart showing how UK government borrowing since April is in line with forecasts from the fiscal watchdog Photograph: ONS
Dennis Tatarkov, senior economist at KPMG UK, has warned that June’s higher borrowing piles more pressure on public finances, which could mean spending cuts or tax rises.
Tatarkov explains:
“Higher than expected interest payments as well as weaker revenues have pushed borrowing above the OBR’s projection for the second month in a row.
“Furthermore, the longer-term outlook for public finances remains difficult. Recent U-turns on welfare and persistent growth headwinds could open a gap against fiscal targets, which could require further tax rises or spending cuts in the Autumn Budget. To the extent that ongoing deficits point to lingering budgetary pressures, we would expect the OBR to acknowledge these at the next fiscal event.”
Richard Carter, head of fixed interest research at Quilter Cheviot, says today’s UK public sector finances “highlight the parlous state of the government’s fiscal position”, adding:
“Recent events have shown how hard it is for the government to bring spending down. Welfare reform was heavily watered down, while winter fuel payments have been reinstated for millions. As we approach the summer recess this is all going to result in additional speculation of what tax rises will be coming down the line given the need to plug the holes. Bond markets are craving some fiscal discipline, so without any spending cuts, taxes will have to rise.
“This is all going to negatively impact the UK’s growth position. Labour continually speaks about achieving economic growth but if taxes do need to keep rising to cater for an ever increasing debt, that growth is going to prove elusive.”
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