How UK banks made big profits from inflation

And what this tells us about competition

Over the past 2 years, the combined annual profits of the UK’s four largest banks reached around £45 billion, up from about £30 billion in 2022. This surge took place during the cost-of-living crisis, a period when the Bank of England raised interest rates to combat high inflation. Why is this? Ramin Nassehi investigates

Ramin Nassehi

market structures (oligopoly, monopoly power), profits, banking and financial markets, government regulation of markets, consumer protection

One key reason for the profit boost experienced by the UK’s largest banks in recent years has been the widening gap between the interest that banks charge borrowers and the interest they pay to savers. Economists call this the net interest spread. Some analysts argue that this reflects limited competition in the UK’s retail banking market, while others believe that it can be explained by broader economic factors.