BoE raises interest rate to 0.25%
The Bank of England has raised interest rates for the first time in three years amid growing concerns over inflation. The Bank’s Monetary Policy Committee (MPC) voted by a majority of eight to one to raise rates from the historic low of 0.1%. With inflation at a ten year high, the Bank said this was unlikely to ease in the coming months, with the inflation rate likely to climb from the current 5.1% to 6% next spring. This would put inflation at three times the Bank’s 2% target. BoE governor Andrew Bailey said the Bank's rate-setters had thought "long and hard" about the impact of the Omicron coronavirus variant on economic activity before making their decision. The MPC also revised down its expectations for GDP growth in the final three months of the year to 0.6%, from 1% in November. They also voted unanimously to maintain the Bank's asset purchase scheme at £875bn. CBI lead economist Alpesh Paleja said: “The decision to raise interest rates signals that the MPC want to get off on the front foot in tackling rising inflation.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believes the MPC’s decision to increase bank rates before it knows the full extent of the economic impact of the Omicron Covid variant “underlines how worried it is about the outlook for inflation.” Economists at HSBC said the rate rise “is a surprise to the market and to the majority of economists” who had expected that uncertainty around the Omicron variant would have seen rates held until the MPC’s February meeting at the earliest. They added that the Bank “has been flagging a forthcoming hike, and the data this week have been exceptionally hawkish." Laura Suter, head of personal finance at AJ Bell, said: "While Omicron is still a worry for the Bank, rampant inflation is clearly an even bigger concern." Paul Dales, chief UK economist at Capital Economics, said the MPC’s decision “increases the chances that interest rates will rise to the level of 1% priced into the markets for the end of next year." Suren Thiru, head of Economics at the British Chambers of Commerce fears higher interest rates “will do little to curb further increases in inflation”, saying tackling supply chain and labour shortages should be a priority.
Banks pass rate increase on to customers
Britain's biggest banks have announced increases to mortgage interest rates following the Bank of England’s decision to lift the bank rate to 0.25%. Barclays, Halifax, Lloyds Bank, NatWest, Nationwide and Santander all said they would pass on the full increase to customers with loans that track the base rate, with smaller lenders TSB, Virgin Money and Coventry Building Society opting to do the same. Between them, the lenders represent around 70% of the British mortgage market. UK Finance calculations show that around 2m households have some form of variable mortgage. The 850,000 borrowers on tracker-rate mortgages will see repayments increase by £186 a year, while for the 1.1m customers on standard variable rate mortgages, costs will jump by an average of £115 a year. Meanwhile, Capital Economics estimates that the end of record low interest rates means mortgage affordability for first-time buyers is set to shrink to the lowest level in seven years. With the Office for Budget Responsibility (OBR) expecting the base rate to climb to 0.5% in 2022, Capital Economics has warned that this would mean the share of median income needed to service an 80% mortgage on an average home would rise to 42.14% from the current 38.61%. If, as the OBR forecasts, the rate climbs to 0.75% in 2023, the share of median earnings needed will rise to 42.5%.
TPG eyes US IPO
Private equity firm TPG has filed regulatory paperwork for an initial public offering in the United States. The firm, which did not reveal the number of shares it plans to sell or the indicative price range, said it plans to list on the Nasdaq under the symbol ‘TPG’. JPMorgan, Goldman Sachs, Morgan Stanley, TPG Capital and BofA Securities are the lead underwriters for the offering.
UBS in talks with China Life over asset management JV
UBS is reportedly in talks with China Life Insurance Group to launch an asset management joint venture in China. UBS will hold a majority stake in the business unit, which would be China's first foreign majority-owned asset management joint venture with an insurer since it permitted majority foreign holdings in such partnerships in 2019.
Morgan Stanley increases parental leave
Morgan Stanley has increased parental leave, with a memo saying parents - whether through new birth, adoption, foster care or surrogacy - would be entitled to a minimum of 16 weeks of paid leave. Employees would also get between six and eight weeks of medical leave post-pregnancy. Staff will also be able to take four weeks of paid leave to care for a family member with a serious health condition, the bank said.
Varvel set to exit Credit Suisse
Sources say Eric Varvel, chairman of Credit Suisse's investment bank, is in discussions to leave the company.
GAM and ex-fund chief fined £9.3m
The UK arm of Swiss asset management business GAM has been fined £9.1m by the Financial Conduct Authority (FCA) for conflicts of interest related to three investments made by the company’s Absolute Return and Long Only funds between 2016 and 2018. Former fund manager Tim Haywood has been handed a £230,037 penalty for failing to manage conflicts of interest and for breaking GAM’s gifts and entertainment policies. The fines would have been far higher but both GAM and Mr Haywood qualified for 30% discounts for cooperating with the investigation – reducing the firm’s fine from £13m and Mr Haywood’s from £319,044. Peter Sanderson, GAM CEO, said: “We fully accept the findings of the FCA and acknowledge the conflicts of interest shortcomings which occurred.” Mr Haywood, who was sacked in 2019 for gross misconduct after an internal investigation revealed issues related to some of his risk management procedures and record keeping, said: “I respect the findings of the Authority who have undertaken an extremely extensive investigation over many years into all manner of allegations and accusations.”
FCA: Finablr cannot sidestep shareholder vote on delisting
The Financial Conduct Authority (FCA) says payments company Finablr cannot delist from the London Stock Exchange without a vote by its shareholders. Finablr’s shares have been suspended since March 2020 and the FCA says its application to delist under a rule allowing firms in a precarious financial position to bypass a shareholder vote has not met the necessary conditions. The financial services holding company was linked to alleged fraud after it discovered $1bn of undisclosed debt last year.
DB transfer values reach new high
Defined benefit transfer values hit a new high in November. XPS Pensions Group’s Transfer Value Index shows transfer values hit a high of £270,000 at the end of the month on the back of further forecast increases in inflation rates and a slight reduction in gilt yields.
LEISURE & HOSPITALITY
Sunak mulls support measures for hospitality
Chancellor Rishi Sunak will hold talks with business leaders over a support package for the hospitality sector amid concerns over the latest wave of pandemic-related restrictions and guidance. The sector has been hit by the Omicron variant, with pubs and restaurants saying bookings have been declining as case numbers climb. Warning of the challenges being faced by the sector, UK Hospitality chief executive Kate Nicholls said the situation is “dire and deteriorating on a daily basis.” “It’s been pretty bad over the past ten days but now it’s fallen off a cliff.” A poll of UK Hospitality members shows that in the ten days to Tuesday, 50% of Christmas bookings were cancelled and walk-in trade fell by a third compared to the previous ten days. Mr Sunak says his “immediate priority” is to make sure that existing funding given to local councils “gets out the door to those who need it as quickly as possible”. Sources say ministers are also examining plans in which grants could be topped up to help companies bridge the gap in revenues over the Christmas period.
Law firms hit as indemnity cover costs rise
The number of law firms closing amid failures to obtain insurance has jumped in the last five years, with analysis showing that 65 legal practices in England and Wales shut their doors in the year to the end of September 2020, compared with 11 in 2016/17. The report shows that 63 firms had shut in 2020/21, but notes that not all possible closures have been reported, with it likely that the total will surpass last year’s. The analysis shows an increase in premiums for professional indemnity insurance. Small and medium-sized practices have been hardest hit, with an average increase of 27%.
November sees rent rises
Across Britain, rents rose 7.9% year-on-year last month. Outside the capital, rents have risen by 16.1% since the start of last year. This was triple the 5.9% pace recorded across Greater London. Growth was biggest in the South West, where rents have climbed 23.5% since January 2020, an increase of £195 per month. Rents across London’s 13 central boroughs climbed 3.9% year-on-year in November, the first annual rise since January 2020.
Latest restrictions deal fresh economic blow
The latest pandemic-related restrictions are hitting the UK economy, with the IHS Markit/CIPS UK purchasing managers’ index (PMI) falling to a 10-month low. The index has fallen to 53.2 from 57.6 in November. The decline was driven by the services industry being hit by “tighter pandemic restrictions and renewed business uncertainty,” IHS Markit said, with the services PMI dipping to 53.2 in December, down from 58.5 in November. Chris Williamson, chief business economist at IHS Markit, said the PMI underlines “the UK economy being hit once again by Covid-19, with growth slowing sharply at the end of the year.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said near-real-time indicators have weakened over the past two weeks, adding that it is “looking highly likely” that GDP will drop in December and January, “driven by declines in consumer services activity.”
Consumer confidence slips as Christmas nears
Consumer confidence has slipped in the run-up to Christmas, with GfK's Consumer Confidence Index falling one point to -15 in December. While the Major Purchase Index decreased by three points to -6, it is 16 points higher than it was this month last year. The measure for the general economic situation during the past 12 months is one point up at -39, 26 points higher than last December. Joe Staton, GfK's client strategy director, said the Omicron Covid variant “could not have arrived at a worse time for festive celebrations”, adding that the “lack of Yuletide cheer is evident.” "We end 2021 on a depressing note and it looks like it will be a bleak midwinter for UK consumer confidence possibly with new Covid curbs and little likelihood of any real uplift in the first months of 2022," he added.