​​​​UK bank share prices under pressure ahead of earnings

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UK banks have had a tough six months, and despite good earnings from their US counterparts the outlook remains difficult thanks to pressure on borrowers and the likely end of the Bank of England’s rate hikes.

Source: Bloomberg

 

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 Chris Beauchamp | Chief Market Analyst, London | Publication date: Monday 23 October 2023 13:21

UK banks face tough outlook

This week marks the beginning of UK bank earnings season, with Barclays, Lloyds, and NatWest all set to report their financial results. However, it seems that US banks have outperformed their UK counterparts, as the weaker state of the UK economy makes it less likely for UK banks to achieve a similar level of success. While NatWest, Lloyds, and HSBC are expected to announce a rise in profits, Barclays is anticipated to experience a decline in earnings. This divergence in performance can be attributed to various factors, including the impact of higher borrowing costs on loan demand. The recent weakness in mortgage approvals has certainly played a role in dampening loan demand, affecting the overall profitability of banks.

Higher rates a mixed blessing

On one hand, higher interest rates have been beneficial for bank earnings. However, they have also placed pressure on borrowers, leading to an increase in impairments and provisions for bad loans. This dual effect of higher interest rates highlights the delicate balance that banks must navigate in order to maintain profitability while managing the risks associated with lending.

Rates unlikely to keep rising

Looking ahead, it is worth considering the future trajectory of interest rates. The Bank of England is likely approaching the end of its hiking cycle, which raises the question of where rates will go from here. This uncertainty adds another layer of complexity for banks, as they must anticipate and adapt to potential changes in the interest rate environment.

In summary, UK bank earnings are expected to reflect the challenges posed by the weaker state of the economy and higher borrowing costs. While some banks may report a rise in profits, others may face a decline. The impact of higher interest rates on borrowers and the future direction of rates further contribute to the complexity of the banking landscape.

Lloyds share price – technical analysis

Lloyds has seen a steady decline since March. Lower highs in April, July and September have maintained the bearish view, though 40p has been support since June. Recent gains were capped at 44p, so a close above this level is needed to provide a short-term bullish view, but it will still face potential resistance around the July and September highs.

Source: ProRealTime

Barclays share price – technical analysis

After the huge losses of February and March, the price rebounded, but gains were contained below 165p. Since June, buyers have stepped in around 143p to prevent any near-term downside, with sharp rallies following dips into this level. Bulls will be watching for a possible repeat performance, though trendline resistance from the September highs could come into play to cap any near-term upside.

Source: ProRealTime

 

 

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