BoE leaves rates unchanged: Should you hold these 2 banking stocks?

Highlights 

• UK central bank maintained its record low-interest rates of 0.1 per cent.
• The BoE may undertake policy tightening measures and may end the bond buying program early.

The UK’s central bank, the Bank of England (BoE), maintained UK’s interest rates at a record low of 0.1 per cent today and also stuck to its asset purchase target of £875 billion.

Although the holding of interest rates was expected by the City, on concerns over a rising trend in the inflation rate turning grim.

Inflation is currently at 3.2 per cent, much higher than the Bank of England’s target inflation rate of 2 per cent. The BoE said it expects consumer prices to be over 4 per cent in the final quarter of 2021 and could remain over 4 per cent even up to Q2 2022 due to the ongoing energy price shock and gas supply crisis.

The BoE also revised its Q3 2021 GDP data from 2.9 per cent in August, down to 2.1 per cent in its latest report, due to the impact of supply chain issues.

While BoE’s governor Andrew Bailey and other BoE staff have said that rising inflation is a temporary challenge, several other central bank employees have expressed concern over the supply chain crisis hitting the UK.

Moreover, BoE deputy governor Dave Ramsden and others have indicated a policy tightening measure may be possible at some point, as the bank’s bond-buying program is expected to end early.

Economists now expect rates can remain unchanged until Q4 2022.

In view of this, let us look at 2 FTSE 100 banking stocks and how they reacted to the development:

1. Barclays PLC (LON: BARC)

UK based banking major Barclays reported it hired e-commerce giant Amazon’s head of payment for Europe, Antony Stephen, to head the bank’s point of sale payments business division.

The company entered into the rising buy now pay later space in November 2020 via a partnership with Amazon in Germany.

(Image source: Refinitiv)

Barclays’ shares were trading at GBX 182.94, up by 0.95 per cent today at 12:23 PM BST, while the FTSE 100 index was at 7,089.79, up by 0.09 per cent.

The company’s market cap is at £30,564.22 million, and its one-year return is at 98.17 per cent as of 23 September.

It has a 1 year forward P/E ratio of 6.79x compared to an industry median of 10.26x and a one year forward dividend yield of 4.83 per cent, compared to an industry median of 4.91 per cent as per Refinitiv.

2. HSBC Holdings PLC (LON: HSBA)

HSBC Holdings is a multinational banking giant. The company’s CEO, Noel Quinn, said today that he had concerns that the Chinese property developer Evergrande’s debt crisis could have ripple effects in the form of second order and third order impact across capital and bond markets.

However, Mr. Quinn also added that he did not have any concerns regarding HSBC’s loan exposure to China’s commercial real estate sector.

(Image source: Refinitiv)

HSBC’s shares were trading at GBX 373.00, down by 0.64 per cent today at 13:07 PM BST, while the banking sector index was at 2731.29, up by 0.35 per cent.

The company’s market cap is at £76,680.45 million, and its one-year return is at 30.06 per cent as of 23 September.

It has a 1 year forward P/E ratio of 8.08x and a 1 year forward dividend yield of 4.99 per cent as per Refinitiv.

Bottom Line

The BoE has signalled that there could be a policy tightening in the upcoming quarters but is in a wait and see phase at present until it assesses the impact of covid-19, the deepening of gas price crisis, supply chain challenges and the upcoming furlough system ending.