The Impact of Fluctuations in the Pounds Value on Commercial Banks Activities Based on Mini-budget and Banks Interest Rate Hikes

Abstract

Since August 2022, the British pound exchange rate has continued to decline due to multiple factors such as the global epidemic and the Russia-Ukraine war. Against the background of the cost of living crisis with high inflation, especially the sharp rise in energy costs, the British government issued a new tax cut, namely the mini-budget, but the implementation effect is very poor; Subsequently, the Bank of England adopted successive interest rate hikes in an attempt to stabilize the value of the pound and temper the general situation of inflation. This paper critically evaluates the impact of the fluctuation of the value of sterling on the activities of commercial banks in the financial market and analyzes the reasons, advantages, and disadvantages. Commercial banks can benefit from sterling volatility in several ways, such as generating higher trading revenues, enhancing asset liquidity, attracting more capital inflows and trading opportunities, and increasing equity market capitalization. On the other hand, a similar sterling appreciation could have multiple negative effects on commercial banking operations, including risk management, net profits, policy interest rates, and international competition. For the development prospects of commercial banks, it is recommended that in the context of the overall global economic downturn, timely adjust their operations and strategies to adapt to these changes, to withstand the business risks related to exchange rate fluctuations, such as changes in interest rates, interest spreads, and capital costs.