The Bank of England has raised interest rates to 1.25 per cent from 1 per cent — the highest level since January 2009.
Many analysts and traders had expected the regulator's monetary policy committee (MPC) to decide on a 25-basis-point rise in the benchmark lending rate to 1.25 per cent, as it fights soaring inflation which sits at 9 per cent and is expected to top 11 per cent later this year.
The move is much less severe than the US Federal Reserve's historic 75-basis-point increase on Wednesday.
Sterling lost ground against the dollar and euro earlier in the day with traders' attention on the central bank's interest rate decision. The pound slumped as much as 0.9 per cent against the dollar to $1.2070. Against the euro, it was down 0.4 per cent at 86.03p.
Three of the nine-person committee voted for an even bigger increase, arguing that rates should rise as high as 1.5 per cent.
The committee had been under pressure from some to order a more aggressive increase than the expected quarter-percentage-point rise amid concern such a move would do little to combat price increases that have pushed inflation to a 40-year high.
Policymakers led by Governor Andrew Bailey hinted that they may join a growing global trend for larger hikes if inflation continues to soar, saying the MPC “would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response.”
Crucially, that language was endorsed by all the BOE’s voters, a departure from May when two declined to sign up to guidance that more hikes were on the cards.
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The BoE also raised its forecast for the peak of inflation this year to “slightly above” 11 per cent, reflecting the planned increase in the energy price cap in October, and said it now expects the economy to contract in the current quarter.
The central bank warned that prices for households across the country might increase even further than previously thought.
“In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the committee voted to increase the Bank rate by 0.25 percentage points,” the MPC said in a notice.
The cost of living has been soaring for months, with consumer prices index (CPI) inflation hitting a 40-year high of 9 per cent in April when the energy price cap was raised. Experts have warned that regulator Ofgem could put up energy prices even further, from £1,971 per year to around £2,800.
This, alongside other pressures in the economy, could lead to inflation topping 11 per cent in October, the bank said.
Just a month ago it had predicted inflation would peak at above 10 per cent.
“The economy has recently been subject to a succession of very large shocks,” Governor Andrew Bailey wrote in a letter to Chancellor Rishi Sunak, setting out why inflation was so much higher than its 2 per cent target.
“These shocks have pushed global energy and tradable goods prices to elevated levels.
“Those price increases have raised UK inflation and, since the United Kingdom is a net importer of these items, will necessarily weigh on most UK households’ real incomes and many UK companies’ real profits.”
Naeem Aslam, chief market analyst at Ava Trade, said a steeper increase had been expected. “The BoE has surprised the markets by increasing the interest rate by only 25 basis points only when market players were expecting the bank to raise the rate by 50 basis point,” he said. “The move has brought weakness for sterling which itself doesn’t really help the inflation situation which the bank is trying to resolve. This is because a weaker currency brings more inflation for the UK as imports become troublesome.
“For the equity markets, the FTSE 100 index has also moved lower because traders believe that the bank needs to buckle up more and be more strict with interest rate hikes even if it comes with some pain.”
Chieu Cao, chief executive of Mintago, said the central bank's latest rise “will hardly be celebrated” by cash-strapped Britons who feel their finances are “spiralling out of control”.
“Given soaring inflation, many individuals feel they don’t have enough money to live on, let alone save,” he said. “Indeed, Mintago’s research found that 72 per cent of Britons in full-time employment feel they are prioritising immediate financial commitments [e.g. mortgages or utility bills] over their long-term financial goals. And with pressure likely to remain for some time, many will feel like their finances are spiralling out of control.”
Earlier, Michael Hewson, chief market analyst at CMC Markets UK, said in a note to clients that “radical action” is needed to provide stability to the economy. “It is quickly becoming apparent that more radical action is needed for the Bank of England to establish some sense of stability, because tinkering around the edges simply isn’t cutting it,” he said.
The US Federal Reserve on Wednesday announced its biggest interest rate increase since 1994, raising its benchmark rate by three quarters of a percentage point to a range of 1.5 per cent to 1.75 per cent.
While it began raising interest rates earlier than its counterparts, the UK central bank is now trailing the Fed in the global battle against inflation fuelled by soaring food and energy prices.
Russia’s invasion of Ukraine in February caused household costs to shoot up, with the war continuing to disrupt shipments of oil, natural gas, grain and cooking oil. This factor added to the already higher prices recorded last year as the global economy began to recover from the Covid-19 pandemic.
The Bank of England's policymakers have been cautious about increasing interest rates too quickly, arguing that many of the inflationary pressures facing the UK economy are external and beyond bankers’ control.
But price increases are now becoming embedded in the economy, giving rise to demands for higher wages amid slowing economic growth as consumers and businesses curtail purchases.
Gold prices fell on Thursday after the Fed’s announcement, as the dollar recovered slightly.
Spot gold prices fell by 0.17 per cent to $1,830.93 per ounce as of 7.30am UK time, while gold futures rose by 0.72 per cent to $1,832.75 per ounce.
The Swiss National Bank raised its policy interest rate for the first time in 15 years in a surprise move on Thursday, and said it was ready to increase it further.
The landlocked country’s central bank increased its policy rate to minus 0.25 per cent, from the minus 0.75 per cent level it put in place in 2015.
Vidaamuyarchi
Director: Magizh Thirumeni
Stars: Ajith Kumar, Arjun Sarja, Trisha Krishnan, Regina Cassandra
Rating: 4/5
The President's Cake
Director: Hasan Hadi
Starring: Baneen Ahmad Nayyef, Waheed Thabet Khreibat, Sajad Mohamad Qasem
Rating: 4/5
Ad Astra
Director: James Gray
Stars: Brad Pitt, Tommy Lee Jones
Five out of five stars
The National Archives, Abu Dhabi
Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.
Much of the material can be viewed on line at the Arabian Gulf Digital Archive - https://www.agda.ae/en
Islamophobia definition
A widely accepted definition was made by the All Party Parliamentary Group on British Muslims in 2019: “Islamophobia is rooted in racism and is a type of racism that targets expressions of Muslimness or perceived Muslimness.” It further defines it as “inciting hatred or violence against Muslims”.
TEACHERS' PAY - WHAT YOU NEED TO KNOW
Pay varies significantly depending on the school, its rating and the curriculum. Here's a rough guide as of January 2021:
- top end schools tend to pay Dh16,000-17,000 a month - plus a monthly housing allowance of up to Dh6,000. These tend to be British curriculum schools rated 'outstanding' or 'very good', followed by American schools
- average salary across curriculums and skill levels is about Dh10,000, recruiters say
- it is becoming more common for schools to provide accommodation, sometimes in an apartment block with other teachers, rather than hand teachers a cash housing allowance
- some strong performing schools have cut back on salaries since the pandemic began, sometimes offering Dh16,000 including the housing allowance, which reflects the slump in rental costs, and sheer demand for jobs
- maths and science teachers are most in demand and some schools will pay up to Dh3,000 more than other teachers in recognition of their technical skills
- at the other end of the market, teachers in some Indian schools, where fees are lower and competition among applicants is intense, can be paid as low as Dh3,000 per month
- in Indian schools, it has also become common for teachers to share residential accommodation, living in a block with colleagues
The specs: 2019 Haval H6
Price, base: Dh69,900
Engine: 2.0-litre turbocharged four-cylinder
Transmission: Seven-speed automatic
Power: 197hp @ 5,500rpm
Torque: 315Nm @ 2,000rpm
Fuel economy, combined: 7.0L / 100km
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
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Results
6.30pm: Maiden Dh165,000 (Dirt) 1,400m. Winner: Rio Angie, Pat Dobbs (jockey), Doug Watson (trainer).
7.05pm: Handicap Dh170,000 (D) 1,600m. Winner: Trenchard, Pat Dobbs, Doug Watson.
7.40pm: Maiden Dh165,000 (D) 1,600m. Winner: Mulfit, Pat Dobbs, Doug Watson.
8.15pm: Handicap Dh210,000 (D) 1,200m. Winner: Waady, Dane O’Neill, Doug Watson.
8.50pm: Handicap Dh210,000 (D) 2,000m. Winner: Tried And True, Pat Dobbs, Doug Watson.
9.25pm:Handicap Dh185,000 (D) 1,400m. Winner: Midnight Sands, Pat Dobbs, Doug Watson.
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
Squid Game season two
Director: Hwang Dong-hyuk
Stars: Lee Jung-jae, Wi Ha-joon and Lee Byung-hun
Rating: 4.5/5
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KILLING OF QASSEM SULEIMANI
A State of Passion
Directors: Carol Mansour and Muna Khalidi
Stars: Dr Ghassan Abu-Sittah
Rating: 4/5
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UAE currency: the story behind the money in your pockets
Graduated from the American University of Sharjah
She is the eldest of three brothers and two sisters
Has helped solve 15 cases of electric shocks
Enjoys travelling, reading and horse riding
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Profile
Company: Justmop.com
Date started: December 2015
Founders: Kerem Kuyucu and Cagatay Ozcan
Sector: Technology and home services
Based: Jumeirah Lake Towers, Dubai
Size: 55 employees and 100,000 cleaning requests a month
Funding: The company’s investors include Collective Spark, Faith Capital Holding, Oak Capital, VentureFriends, and 500 Startups.
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
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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Defence review at a glance
• Increase defence spending to 2.5% of GDP by 2027 but given “turbulent times it may be necessary to go faster”
• Prioritise a shift towards working with AI and autonomous systems
• Invest in the resilience of military space systems.
• Number of active reserves should be increased by 20%
• More F-35 fighter jets required in the next decade
• New “hybrid Navy” with AUKUS submarines and autonomous vessels
Andor
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