The UK's recession-threatened economy rebounded in July, but by less than expected after a hefty fall the previous month, according to official figures.
British gross domestic product grew 0.2 per cent after contracting by 0.6 per cent in June. Economists had expected 0.3 per cent growth.
The Bank of England expects the UK economy to enter recession before the end of the year amid decades-high inflation fuelled by sky-high energy and food bills.
The death of the queen and another holiday for her funeral on September 19 may be enough to tip the economy into recession in the current quarter, analysts at Nomura and Deutsche Bank said. Consumers and businesses are struggling under the weight of soaring inflation and energy bills, even with Prime Minister Liz Truss's package of measures to freeze further increases in natural gas and electricity costs.
The Office for National Statistics (ONS) said the services sector was the biggest driver of the rebound, growing by 0.4 per cent over July.
This followed a 0.5 per cent drop in the sector between May and June.
In the three months to July, GDP was flat compared with the previous three-month period.
“Anecdotal evidence suggests that there may be some signs of changes in consumer behaviour and lower demand in response to increased prices,” the ONS said, regarding a fall in power generation.
June's big decline had been attributed partly to an extra public holiday celebrating the platinum jubilee of late queen Elizabeth II following her 70 years on the throne.
“The feeble 0.2 per cent bounce back in July was driven by weak GDP in June due in part to the loss of working days from the Jubilee long weekend,” noted Yael Selfin, chief economist at KPMG UK.
“More concerning, July's GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer.
“This ties into a downbeat outlook for the UK economy which could see another shallow recession from the end of this year, driven by the continuing squeeze on households’ income and a rising cost burden for businesses.”
Britain usually has only one public holiday in early summer but the number was doubled for the Jubilee.
Time off work for millions of Britons next Monday means the economy will have had two more public holidays than usual in 2022.
Alice Haine, personal finance analyst at online investment platform Bestinvest, said: “Flattening economic growth in the three months to July was to be expected when you consider the immense challenges the country was facing as the fallout from the war in Ukraine and rising borrowing costs took their toll on the economy. The resulting rises in food, fuel and energy prices sent inflation soaring to a 40-year high of 10.1 per cent in July and forced households and businesses to re-evaluate their expenditure.
“Despite this, there was slight GDP growth in July driven by the services sector, with the UK’s decision to host the Women’s Euro Championship and the Commonwealth Games delivering a positive boost to output. However, the production and construction sectors contracted in July — a reflection of the shifting economy as Britain really started to grasp the sheer scale of the energy crisis and the fact that price rises were not going to reverse any time soon.”
Last month, the Bank of England forecast that Britain would slip into a recession at the end of 2022 and not come out of it until early 2024, due in large part to the hit to living standards from the energy price surge.
Last week, Ms Truss announced a huge handout to households by promising to cap surging energy prices, reducing the risk of a severe hit to the economy albeit at a cost of 100 billion pounds ($116.16 billion) or more to already stretched public finances.
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.”
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