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At the Bank of England meeting today (18 December), the committee decided to cut the base rate by 0.25% to 3.75%. It’s the sixth cut since the last general election, marking the fastest pace of cuts in 17 years. Even though some will be cheering this on, I think it could spell bad news for the Barclays (LSE:BARC) share price. Here’s why.
A trend lower
Barclays is a large global bank with a finger in many pies. Yet at its core, it makes most of its money via charging interest on loans and paying out a lower rate of interest on deposits. The spread between them is known as the net interest margin. During the past quarter, total income was £7.2bn, with net interest income making up £3.3bn. So it’s clearly a big driver for the company.
When central bank committees reduce the base rate, Barclays’ net interest margin shrinks. It indeed takes some time to filter down to lower-income areas, so I’m not suggesting the bank will struggle in the next couple of months. But what’s concerning me is that we’re seeing a similar trend globally: interest rates are falling.
For the Bank of England, we could see more reductions next year. In the US, it’s a similar story. As a global bank, Barclays could mitigate any negative impact if it were only the UK where interest rates were being lowered. But if we do see it happening in key markets around the world, I think overall income for 2026 could fall, hindering the share price.
Rate cut reasonings
The other concern I have is the underlying reasons why central bank teams are cutting interest rates. This is partly being done as inflation is coming under control, which is good. But it’s also being done to stimulate the economy. Here in the UK, economic growth is non-existent. As a result, lowering the base rate can act to help push consumers to spend rather than save.
For Barclays, if 2026 turns out to be a year of low economic growth, the share price might struggle to do well. Transactional spending could dry up, mergers-and-acquisitions activity from investment banking clients could slow, and mortgage demand could decline. These factors (and more) could spell bad news.
The flipside
Net interest income isn’t the only way the bank makes money. It has a strong wealth management arm, which makes money from charging fees for advice. The global markets division generates revenue by facilitating trading for corporates. So the stock could be supported by outperformance in these areas. Indeed, some of the 73% gain in the stock over the past year has come from this.
Further, the Bank of England committee today noted that it is concerned about the potential for rising inflation. As a result, this could mean any cuts next year might have to be revised. If the base rate remained higher for longer, this could boost sentiment and the share price.
Ultimately, I’m not saying the stock price is going to crumble, but I do believe there are better growth options for investors to consider in 2026.
