Bank Industry Insights: December 2024 edition

The Office for Economic Cooperation and Development (OECD) has warned central banks this week against cutting interest rates too fast. At the end of Q3, central banks in most of the OECD economies have cut rates in response to the fall in price pressures, and are expected to continue cutting rates into 2025. However even though the global economy was showing remarkable resilience following the severest bout of inflation for a generation, and is expected to remain resilient, Álvaro Pereira, the OECD’s chief economist, flagged that risks and uncertainties – including the intensification of geopolitical tensions, inflation turning out more persistent than anticipated and a sharp repricing of risk in financial markets – remain high.

Also in the report, the OECD forecasts that the ECB's benchmark deposit rate, now 3.25 per cent, should fall 2 per cent towards the end of 2025, and the US Federal Reserve’s target range would be lowered from 4.5-4.75 per cent to between 3.25-3.5 per cent by the first quarter of 2026. The OECD predicted the BoE would not be able to lower rates as far as its counterparts, because of the UK’s growth and inflation prospects.

Speaking with the FT this week, BoE Governor Andrew Bailey said that, while a number of different inflation scenarios were possible, the central forecast in the BoE’s latest monetary policy report implied it would pursue “gradual” interest rate reductions. When questioned about the possibility of the MPC implementing around four UK rate cuts next year, Bailey responded with a simple, "Yup."

The motor finance industry has been reeling since the Court of Appeal ruled it was unlawful for car dealers to receive commissions from motor finance providers, unless such payments had been disclosed to the customer and consent had been given. Our Dispute Resolution team will be hosting a client webinar on Thursday 12 December at 11 am (GMT) to discuss the key aspects of decision, including the risk of claims in relation to past sales where commissions have been paid across a range of industries, and what businesses can do to assess and avoid the risk of claims for future sales. You can sign up using this link: https://lnkd.in/ek5bdKTH

Finally, the latest edition of our Financial Services SpeedRead is now available, where you will find bite-sized updates on the key regulatory developments in the financial services sector over the past two weeks. This edition includes:

• an update on the BoE's consultation paper regarding its proposals for the introduction of a set of Fundamental Rules for Financial Market Infrastructures in the UK;
• an insight into ESMA's final report assessing shortening the standard securities settlement cycle from T+2 to T+1; and
• a look at the Mansion House speech from the UK Government's Chancellor of the Exchequer, Rachel Reeves.