In its quarterly inflation report the BoE acknowledged that banks had not been passing through the full 0.5% interest rate rises to borrowers and savers enacted over the last year.
This has meant many banks are seeing net interest margins fall and this could potentially impact on bank solvency.
When questioned about the report, the BoE’s Monetary Policy Committee (MPC) acknowledged that it was aware of the situation and monitoring it closely.
However, it did not feel the need to take action yet.
Pressure on margins
Sir Dave Ramsden, deputy governor markets and banking, said: “Generally across the deposit and lending side through this period of putting up BBR twice in the last year we’ve seen what we would broadly expect in terms of pass through.
“There are various pressures on banks’ net interest margins and we are monitoring that closely.
“But degree of pass through we’ve seen has been broadly as we expected.”
Ben Broadbent, deputy governor monetary policy, (pictured) echoed this and suggested the timing of intense mortgage market competition had affected the situation.
“At same time as we’ve had these two rate increases there has been more aggressive competition in the mortgage market and that has depressed some of these margins.
“I’d only say monetary policy operates in many more ways than just interest rates on new mortgages,” he added.
