Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group Plc (LLOY) led U.K. banks higher as investors bet the government will wait to apply new regulation.

RBS rose as much as 8.8 percent to 26.4 pence and traded at 25.82 pence at 11.39 a.m. in London. Lloyds traded up 4.8 percent at 35.19 pence and Barclays Plc (BARC) gained 4.9 percent to 179.1 pence.

Business Secretary Vince Cable “whose been one of the more vocal critics of banks and has been making some of the more aggressive recommendations towards the Independent Commission on Banking’s potential course of action, has clearly started to moderate his message and this starts to remove some of the regulatory pressure that has been a major reason for U.K. bank underperformance more recently,” said Alex Potter, an analyst at Berenberg Bank in London.

The Financial Times today reported that British banks will escape restructuring until after the planned 2015 general election, citing unidentified government officials. Cable accepted that it may not be possible to implement reforms before the next election, the FT reported.

The government-appointed ICB recommended in April that the U.K.’s biggest banks should boost capital, introduce plans for an orderly bankruptcy and erect firebreaks around consumer units to boost financial stability. If accepted, the plans, to be unveiled on Sept. 12, should be implemented over a lengthy period, banks including Lloyds, Barclays and RBS said in July.

Lower Costs
Barclays is “trading at close to half book value” as investors anticipated the new rules would lead to higher costs in the short term, according to UBS AG analysts led by John-Paul Crutchley, who today upgraded their recommendation to “buy” from “neutral.”

“The ability to have more time to get the balance sheet into the right place is likely to lead to lower restructuring costs to get there,” said the analysts in the note.