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Interest earned by the UK’s largest high street banks on their Bank of England reserves surged 135 per cent to more than £9bn last year, according to data released on Wednesday.
NatWest, Barclays, Lloyds and Santander collectively received £9.23bn in interest on deposits held by the central bank in 2023, more than double what they had earned the previous year, according to figures published by the House of Commons Treasury select committee.
The interest the BoE paid on commercial banks’ reserves, which is ultimately covered by the Treasury, has risen sharply in recent years as the central bank lifted its key rate to 5.25 per cent in an effort to bring inflation back under control.
Dame Harriet Baldwin, chair of the committee, said the data showed “the staggering scale of unanticipated income high street banks are bringing in, with no work required, as a result of increased interest rates.”
According to the figures, interest income from BoE reserves jumped £1.8bn year-on-year for Lloyds to £2.6bn in 2023, while both Santander’s and NatWest’s payments rose by £1.2bn to £1.9bn and £2.9bn, respectively. Barclays reported that its interest payments rose by £1.1bn, to £1.9bn.
The disclosures were made in letters written to the committee by the four banks’ bosses, who have come under pressure to pass on the benefits of the higher interest rate environment to savers. Last year, the Financial Conduct Authority urged Britain’s biggest banks to act faster in pushing through better savings rates for customers.
The letters said the banks had worked towards giving customers a fairer deal and flagged that customers had moved money to higher yielding products in the past year.
“I am pleased to see some effort is being made to pass through competitive rates for our constituents and that consumers are shopping around more,” said Baldwin, adding that the letters signalled “a bit of progress from banks in giving customers with savings a better deal.”
The committee also noted “a significant uptick” in the interest rate that NatWest and Santander were paying customers.
The revelations will increase scrutiny of the BoE’s decision to pay interest on the entirety of the high street banks’ reserves it holds as part of its quantitative easing programme.
When the BoE first rolled out QE it was profitable because of low interest rates but because they have hit 5.25 per cent it is now lossmaking. The New Economic Foundation, a think-tank, has suggested the central bank limits the level of interest it pays to commercial banks to save taxpayers’ money.
