Barclays set to cash in on market frenzy amid Middle East crisis
Barclays and its UK banking peers could be set for a cash boost from the brewing crisis in the Middle East as investors quickly dump equities and fears of an inflation spike spread.
FTSE 100 giant Barclays has been noted as uniquely shielded by analysts due to its mammoth market divisions.
Jefferies analysts said the bank’s income from high-speed market volatility trading is 3.5 times larger than the fees pocketed from traditional investment banking, suggesting whilst others could be swept up in the volatility, Barclays may be able to cash in.
In the first half of 2025, Barclays’ investment bank powered a £1bn profit jump for the group as it rode high on market volatility.
The firm’s investment bank pocketed £7.1bn in total income for the half, marking a 13 per cent rise. In the three months ending June 30, the arm’s income jumped ten per cent annually to £3.3bn.
The bank said the strong performance in global markets, which includes areas such as equities trading, was the main driver in growth. Meanwhile, takings were partially offset by weaker performance in investment banking activity, which includes the likes of mergers and acquisitions.
It came amid a boom in equities trading after the market frenzy triggered Trump’s ‘Liberation Day’ levies at the beginning of April that caused widespread investor sell-offs.
The chaos in the Middle East has sent ripples through global markets with the FTSE 100 losing near three per cent in a single trading session – the biggest drop since President Trump’s tariff offensive last April.
Jefferies analysts said any “increased volatility is likely to assist markets’ revenue” at top banks.
Banks eye a profit boom on rate cut delays
Following the volatility in energy prices over the last week, analysts also are forecasting a bump in inflation, which is set to dampen the hopes of the Bank of England accelerating its interest rate cutting cycle this year.
The National Institute for Economic and Social Research (NIESR) forecast a temporary rise in oil prices to $100 per barrel could add as much as 0.3 percentage points to inflation, whilst a year-long shock could push inflation by 0.7 points.
City economists have warned such a move would drastically alter the Bank of England’s “gradual” slashing of the base rate.
Banking analysts at Jefferies said the unfolding events in the Middle East have caused markets to change their tune now expecting the UK base rate to be 0.3 per cent higher at the end of the year than previously forecast.
They added: “All else equal, we estimate this would lift [banking] sector profits by four per cent in 2028.”
Lenders would be poised for a delayed profit surge as the ‘higher-for-longer’ rate environment takes hold allowing banks to roll over their multi-billion pound internal investment portfolios – known as structural hedges – into new contracts, with higher yields than previously estimated.
The repricing of hedges means that even if the economy cools, bank income is likely to stay artificially inflated well into 2028.
Lloyds’ “longer than average” structural hedge is expected to boost takings in the year to come, with the bank set to benefit with old earnings hedged on lower rates maturing. But if rates were to remain higher for longer, this boost could come ahead of previous expectations.