The British Pound Sterling was little changed against the Euro and US Dollar on Friday after fresh Bank of England credit data suggested lending conditions are improving, reinforcing the view that the UK economy continues to prove more resilient than many had feared.
The Pound to Dollar exchange rate (GBP/USD) traded near 1.3366, up 0.2% on the day and almost 0.9% higher in July so far. The Pound to Euro exchange rate (GBP/EUR) held close to 1.1674, near its strongest level in a year.
According to Pantheon Macroeconomics, the Bank of England’s latest Credit Conditions Survey shows banks are offsetting much of the drag from higher interest rates by making credit more readily available.
“Banks easing credit availability and narrowing spreads offsets much of the drag from higher risk free rates.”
Pantheon noted that both secured and unsecured lending standards continued to loosen during the second quarter as lenders competed for market share and funding conditions improved.
“A large majority of banks eased the availability of secured and unsecured credit through 2025, and kept loosening standards in Q2 this year.”
The consultancy believes the survey likely paints an overly cautious picture because responses were collected before the Iran ceasefire extension, with wholesale funding conditions having improved since then.
Pantheon now expects mortgage borrowing costs to continue falling, forecasting the average two-year 75% loan-to-value mortgage rate to decline to around 4.3% by October, from 4.9% in May.
While the survey also showed banks reporting a rise in unsecured loan defaults, Pantheon played down the risks.
“We doubt the largest net percentage of banks since 2029 Q3 that are reporting rising unsecured credit defaults… is a major red flag.”
Instead, the consultancy argues the data suggest defaults are rising only modestly from unusually low levels, while easier credit conditions should continue supporting household spending and UK economic growth during the second half of the year.
