Don’t bank on it?

UK banks are closing branches at an alarming rate. The latest bank branch closures bring the total number of high-street branches shut across the sector to 623 so far this year. This is yet another inevitable structural shift due to the growth of internet banking. However, branch closures have created angst in rural communities, especially among elderly customers.

While this has been happening, Nationwide has been capitalising upon bank customer concerns by running a very amusing media campaign. This stars Dominic West as an out-of-touch bank boss who works for the fictional A.N.Y. Bank. At least Nationwide has put its money where its mouth is, in October this year, it had the highest number of UK bank branches with 605.

Meanwhile, the other banks appear to be reacting to customer concerns in the regions and over the summer, several ‘banking hubs’ have been trialled. These are shared spaces on the high street letting customers of multiple banks deposit and withdraw cash, with the staff of each bank being present in person on one chosen day of the week. Meanwhile, the closure of bank branches continues, with Lloyds announcing the closure of another 45 branches and Barclays announcing a further 17 closures, including the one in the PM’s constituency of Richmond!

Many years ago, a career with a bank was viewed as a job for life. Not necessarily so these days. Using ONS data, the total number of bank and building society branches in the UK has fallen from 13,345 in 2012 to 8,060 in 2022. That is a decline of 40% and probably has further to go despite the efforts of Nationwide and regional banking hubs.

The shift to internet banking also creates challenges for regulators in monitoring a potential run on a bank. The consequences of this were demonstrated by the banking crisis in the US earlier this year, which happened a lot quicker than the 2008 financial crash. Speaking of which, anyone remember the queues outside Northern Rock branches in 2007?

What have we been watching?     

Another week and yet another swing in the ‘will they, won’t they?’ interest rate cut pendulum. Investor optimism around the Federal Reserve (Fed) cutting interest rates early, possibly as soon as March 2024, faded at the start of the week but then picked up as US job numbers were broadly in line with expectations. However, there was greater optimism about the European Central Bank (ECB) cutting rates in early 2024. Bond yields moved lower on hopes of interest rate cuts in 2024 but also on concerns about the global economic outlook. Chinese equities drifted to a 13-month low as global credit rating agency Moody’s downgraded Chinese sovereign bonds to negative. Central banks will be in the spotlight later this week, with meetings of the Fed on Wednesday and the ECB and Bank of England (BoE) on Thursday. The BoE is expected to leave interest rates unchanged but will the Fed or ECB provide support for interest rate-cut hopes, or will they look to temper expectations?

While Putin prepares for a long war of attrition, by comparison, the White House has warned that US funding for Ukraine is set to run out by the end of the year, which could ‘kneecap’ Kyiv. Republicans blocked President Biden’s latest $61bn military aid package. Meanwhile, Israeli troops continue to fight Hamas in the southern Gaza strip. While the conflict has not yet escalated across the region, there have been four drone-and-missile attacks so far on merchant shipping in the Red Sea by Iran-backed Houthi rebels.

EU leaders pressed Chinese president Xi Jinping on a yawning trade imbalance as well as expressing concerns over Beijing’s pressure on Taiwan and support for an isolated Russia, at their first meeting in four years. Underlying Beijing’s challenges in getting Europe onside was the news that on the eve of the summit that Italy had withdrawn from China’s Belt & Road Infrastructure initiative.

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UK grocery-price inflation in November fell for the ninth month-in-a-row, although it was still at 9.1%.

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In Europe, a key member of the ECB said that higher interest rates are playing their role as a ‘remedy against the disease that if inflation’ and that barring any shock, there will be no further increase in interest rates and a reduction may arise in 2024, but not now. This has raised hopes that the ECB may give greater forward guidance at its next meeting on what conditions need to be met to cut rates.

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The US service sector grew a little faster in November with the activity index rising to 52.7 from 51.8 in October.

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Japan’s inflation rate dropped to 2.6% in November, more than expected. Despite this data, the governor of the Bank of Japan suggested it may be a lot closer to a policy change.

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Moody’s expects China’s economic growth to slow to 4% in 2024 and 2025. It expects economic growth to average 3.8% between 2026 and 2030, below official government targets. As a result, it has cut its credit rating to negative and is concerned that Beijing will have to support debt-laden local governments and state firms.

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Despite OPEC+ announcing voluntary output cuts, Brent oil slipped lower to $75 as US inventories moved higher and concerns remained about the Chinese economy.

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Finally, the price of gold jumped following the Hamas terror attack and Israel’s invasion of Gaza. The World Gold Council believes gold ETFs have seen outflows in 2023, so who is buying? Apparently, central banks have been increasing their holdings of gold. This follows the experience of Russia’s central bank, which found its dollar-denominated reserves frozen following the invasion of Ukraine. As a result, more central banks are diversifying their assets. How times change – remember 1999? – Gordon Brown thought it would be a good idea to sell over half the UK’s gold reserves!

Read Last Week’s Alpha Bites – I’m afraid there is no money

 

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.