The UK central bank, battling Brexit-fuelled inflation, lifted its key interest rate to 0.50 per cent on Thursday in the first increase since 2007.
Bank of England policymakers voted by a majority of 7-2 to raise rates by 25 basis points from a record-low 0.25 per cent after a regular gathering, mirroring policy tightening seen in the US and eurozone.
The BoE had cut borrowing costs to ultra-low levels during the global financial crisis in 2008 and beyond. However, it is now mulling a gradual path of monetary policy tightening to combat inflation rising far above the central bank's 2 per cent target.
It said that it expected inflation to fall back over the next year based on a "gently rising path" of its key interest rate. "All members agree that any future increases .... would be expected to be at a gradual pace and to a limited extent," the BoE said in a summary of its decision.
The weak pound since last year’s Brexit referendum has ramped up the cost of goods imported into Britain, and therefore consumer prices. Recent official data showed Britain's annual inflation rate accelerated in September to 3 per cent - the highest for more than five years.
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The quarter-point increase also reverses an emergency rate cut implemented in August 2016 after the shock Brexit vote.
The BoE did not, however, alter its quantitative easing, or cash stimulus, policy, which it first embarked upon to encourage commercial lending after the financial crisis.
This is in contrast to the European Central Bank, which last week began weaning the eurozone economy off the high doses of support they prescribed in recent years.
From January, the Frankfurt institution will reduce its purchases of government and corporate bonds to €30 billion a month, from €60 billion at present.
Today’s BoE’s rate rise had been widely anticipated, meaning any market reaction is likely to be muted.
The bank's nine-strong monetary policy committee had hinted at its last meeting in September that a hike was around the corner, despite the big uncertainties about Brexit.
Kathleen Brooks, an analyst at City Index trading group, said that if the bank had failed to increase rates "its credibility could be on the line”.
"The bank has been preparing the markets for this hike for some time," she added.
Opinion is split, however, on whether the hike is a one-off or a sign of things to come.
Allianz Global Investors are looking to sell the pound into a rally, betting that the central bank won’t signal further policy tightening given lingering economic and political risks. Stagnating wage growth, tight household budgets and tough Brexit negotiations are all reasons to believe the BoE will hold fire on further hikes.
Fidelity International has a similar view, while Aberdeen Standard Investments sees scope for more than one increase.
On the other hand, the National Institute of Economic and Social Research predicts the BoE will continue tightening policy over the next few years even as productivity growth slows and Brexit damps momentum.
In a report published on Wednesday, the think tank forecast that the central bank would continue to raise its benchmark rate by a quarter-point every six months until rates reach 2 per cent in the middle of 2021. That’s more than markets are currently expecting and more than the institute forecast in August.
“The reason why we’ve got additional rate increases in our forecast this time is because of the lower productivity profile,” Amit Kara, head of UK macroeconomic forecasting at Niesr, told reporters. “It’s a negative supply shock. You get lower GDP growth, you get higher inflation.”
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Married Malala
Malala Yousafzai is enjoying married life, her father said.
The 24-year-old married Pakistan cricket executive Asser Malik last year in a small ceremony in the UK.
Ziauddin Yousafzai told The National his daughter was ‘very happy’ with her husband.
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