Following the UBS acquisition of Credit Suisse, many are suggesting that the Bank of England (BoE) may hold rates this week, contrary to previous predictions.
The acquisition by UBS also comes following the decision by the BoE, in co-ordination with other central banks, to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements.
In light of this, many brokers and wealth managers now remain optimistic that the predicted rate increase will not come to fruition.
Riz Malik, director of R3 Mortgages said: “The lightning-fast sale of Credit Suisse, which bypassed normal regulatory procedures, highlights the concept that the big players are too big to fail, which is good for the global banking sector’s stability.
“However, the fact that this intervention was even required for a European behemoth will send shockwaves through the market.
“This week’s base rate decision by the Bank of England cannot be immune to these seismic shifts, which may be a saving grace for UK borrowers.
“The BoE is working with other central banks to ensure liquidity in the aftermath of the Credit Suiss debacle.
“It will be interesting to see how the past two to three weeks affect the Fed and BoE rate decisions later this week.”
Further reaction:
Graham Cox, founder of SelfEmployedMortgageHub.com:
“What’s alarming about recent events is just how quickly things have unravelled for both Silicon Valley Bank and Credit Suisse.
“Despite the latter’s bailout from the Swiss government, it wasn’t enough to reassure investors who were pulling out close to $10bn dollars a day towards the end of last week.
“Credit Suisse is one of the 30 ‘too big to fail’ banks. Well now there’s 29, so let’s hope market jitters subside otherwise it could get very hairy indeed.
“On a positive note, recent events mean the BoE is less likely to raise the base rate on Thursday.
“That’s good news for mortgage rates, but it’s equally possible swap rates will increase this week, offsetting any potential upside for borrowers.
“The co-ordinated action to provide banks with extra liquidity shows how worried Central Banks are about contagion and further bank runs.
“The danger is that the markets start targeting the next ‘weakest’ bank and the situation rapidly escalates into another global financial crisis. Hopefully, Sunday night’s developments can help stem the tide.”
Amit Patel, adviser at Trinity Finance:
“The BoE must now vote to leave rates on hold or vote to decrease the base rate following the announcement that UBS will be buying Credit Suisse.
“We need financial stability in the UK now more than ever and I think if they were to raise rates then this will catastrophically backfire.
“We need to learn lessons from our past mistakes, and let’s hope the Monetary Policy Committee does exactly that.
“We have been here before, and sadly once again it’s the ordinary people that will suffer.
“The Bank of England’s statement last night clearly shows how nervous the central banks are about the global banking system and have put measures in place to ease liquidity in the banking sector.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:
“No doubt this is good news to instil confidence in the banking system, but this is a massive kick in the teeth for Credit Suisse shareholders.
“Only last week the Swiss Central Bank was saying it regulated the bank correctly, it held more than sufficient capital and was in no danger of failing.
“Now, the Government have bypassed shareholders and stitched up a deal that will see them get a fraction of the company value at the last closing price.
“It begs the question, why? Someone isn’t telling the full truth, and either the bank was in more trouble which means more might be, or management and Government have well and truly done over millions of shareholders to quieten criticism of the authorities, the bank and the system more generally.”
Bradley Lay, an entrepreneur at Bradley Lay:
“The Bank of England’s stunning announcement to increase the frequency of 7-day maturity US dollar repo operations from weekly to daily, starting on 20 March 2023, has sent shockwaves through the global financial community, highlighting the ongoing concerns about the health of the global banking system.
“Recent failures of major US banks, including Silicon Valley Bank and Signature Bank, have exposed the vulnerabilities of the system to a wider audience.
“While the move to provide liquidity is a positive step, there are concerns that it may not be enough to address the deeper problem of systemic risk and the potential domino effect of major bank failures.
“The announcement may be seen as a signal of further instability to come in the global financial system.”
