Barclays Stock And UK Financials That Could Gain From Higher Rates

With the Bank of England lifting rates to 4% and signalling it may go further if the Iran-related energy shock lingers, the cost of money is back in the spotlight. Some UK-focused financials could see earnings power reshaped as higher borrowing costs, stickier inflation near 5% and upgraded GDP forecasts pull in different directions. This article walks through three stocks from our UK Domestic Banks and Financials Benefiting from Higher Interest Rates screener that appear positively exposed to this rate story. It explains how this backdrop might help or hurt their prospects so you can decide what deserves a closer look now.

The stocks outlined below are just a starter set from this idea. The full screen surfaced 24 more UK-focused financials with equally compelling rate-driven narratives that are not covered here. If you want to identify and analyze the highest-conviction ways to play this theme, head straight to the UK Domestic Banks and Financials Benefiting from Higher Interest Rates screener.

Barclays (LSE:BARC)

Barclays is a flagship choice for the higher-rate theme because its UK-focused deposit and lending engine can see net interest income react directly when Bank of England policy moves. The broader group blends that rate sensitivity with investment banking, cards and wealth businesses.

Barclays runs a broad banking group spanning UK high street banking, credit cards, corporate lending and global investment banking. Revenue is led by Barclays Investment Bank at about £13.5b, Barclays UK around £8.6b and other units smaller, and the company is valued at roughly £57.8b.

"The first concern is Barclays' significant exposure to investment banking and trading income. These businesses are inherently cyclical, and profits can fluctuate considerably depending on market conditions."

What happens to net interest margins and funding costs as higher policy rates meet stickier deposits, alongside one unresolved pressure on credit quality, will be crucial.

If you want to see how that margin story might be accelerating or masking deeper risks, read the full narrative for Barclays for the next layer of insight.

S&U (LSE:SUS)

S&U plugs directly into the higher rate story because its motor and property bridging loans live and die by what happens to domestic borrowing costs and credit appetite in the UK.

S&U runs a UK specialist finance group that earns about £79.7 million from motor finance, £15.9 million from property bridging and a £3 million segment adjustment, with a market value near £231 million.

S&U gives this theme a slightly different flavour, as a pure UK non bank lender where the benefit from higher rates depends on how its funding structure reacts over time.

"Although S&U now has up to £600m of securitisation facilities that management links to lower funding costs, the step up in net borrowings to £285.1m and gearing to 114% raises the risk that interest savings are absorbed by a larger debt load."

What happens when that larger loan book runs through a full rate cycle will likely decide whether margins or finance costs win the tug of war.

That tug of war is exactly what the full narrative for S&U unpacks, showing where S&U's gearing and funding mix could be quietly accelerating long term value.

Funding Circle Holdings (LSE:FCH)

Funding Circle Holdings brings the higher rate theme into the online realm, with a London based lending platform focused on small businesses that earns about £199.7 million from term loans and £50.5 million from FlexiPay, and carries a market value near £583 million.

Higher Bank of England rates put Funding Circle Holdings right in the crosshairs of this theme, because its online lending model lives on the gap between what institutional backers expect to earn and what UK small businesses are prepared to pay for working capital.

"The capital light funding structure, where over 90% of assets under management are term loans owned by institutional investors and supported by about £2.4b of forward flow agreements, creates room for further scaling of originations without a commensurate increase in on balance sheet funding needs, which can support revenue and PBT growth."

What happens when the cost that those funding partners demand shifts just a little will likely decide how much of that spread drops into long term margins.

That spread could be quietly accelerating or capping Funding Circle Holdings' potential. Read the full narrative for Funding Circle Holdings to see how the full model really works.

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