Bank of England survey reports increased funding volumes and costs in Q4 2025

The Bank of England's latest Bank Liabilities Survey for Q4 2025 indicates an increase in total funding volumes and associated costs for UK banks and building societies. Capital levels also rose during the three months to end-November 2025.

Funding volumes and costs on the rise

Lenders reported that total funding volumes increased in the three months to end-November 2025 (Q4) and were expected to increase in the three months to end-February 2026 (Q1).

Within this, 'other' funding – encompassing wholesale debt, wholesale deposits, and central bank operations – increased, as did retail deposit funding.

The cost of funding for both 'other' funding and retail deposits also rose in Q4 relative to appropriate reference rates.

While 'other' funding costs were expected to be unchanged in Q1, retail deposit costs were projected to increase further.

The supply of deposits from households and private non-financial corporations increased in Q4 but was expected to decrease slightly in Q1.

Investor demand for wholesale bank debt from both UK and non-UK investors increased in Q4 and was expected to increase slightly in Q1.

Capital strengthens, transfer prices stable

Total capital levels for lenders increased in Q4, though they were expected to remain unchanged in Q1.

The average cost of capital decreased in Q4, but was anticipated to increase in the subsequent quarter.

Regarding internal pricing, lenders reported that the 'transfer price' – the internal cost charged to business units for funding new loans – remained unchanged in Q4.

However, this transfer price was expected to increase in Q1 2026, indicating potential shifts in internal funding dynamics for new lending activities.

Funding costs signal tighter conditions

The continued rise in funding costs for banks suggests a tightening of financial conditions, potentially impacting future lending.

While capital levels have increased, the expected rise in the cost of capital and transfer prices indicates internal pressures.

This could translate into higher borrowing costs for businesses and households, despite overall funding availability.