The leading ambassador for the UK's financial services industry, Lord Mayor of London Vincent Keaveny, has said the Bank of England's intervention this week was a critical move to safeguard the system.
Gearing up for a week-long trip to the UAE, Saudi Arabia and Kuwait, Mr Keaveny has had a role in the ring during a week of chaos in the UK financial markets. The task facing the City of London now is to reassure international partners that it remains a secure haven for global funds.
Speaking at the Mansion House opposite the Bank of England, Mr Keaveny said issues with pension funds had required the central bank to act to stop contagion. But unlike in 2008, when a run on the Northern Rock bank triggered contagion, the Bank of England restored order in the money markets.
“I think it addressed the immediate concern,” Mr Keaveny told The National on Friday. “The Bank of England did exactly the right thing by stepping in to ensure stability in the financial markets.
“I think the Bank of England's actions this week have been the sort of actions you'd want a responsible central bank, with its keen eye on financial stability, to take the sort of actions they've taken to sort out the issues at the long end of the pension funds business.”
The “ticking time bomb under the financial system”, as it has been called in the UK, was triggered by a rapid drop in the pound early last week after a tax-cutting financial statement by the new government.
Leveraged parts of the pension fund system faced margin calls forcing the managers to sell UK government gilts, pushing up the market interest rates, especially in the benchmark 10-year treasury bond.
Policymakers must now make a judgment if there is a 2008-style systemic flaw in the UK pensions industry and if so, how to fix it.
“Clearly there were issues, whether foreseeable or not, that needed to be managed and better and the Bank of England stepped in.”
With the UK developing relationships with several Arabian Gulf countries through Sovereign Investment Partnerships and keen to complete a free trade agreement with the GCC, maintaining confidence in the City of London is now a prime challenge for its leaders.
“The message is about the City's ability to continue to function and to perform as an international financial centre. I think actions such as the Bank of England has taken do vindicate that position,” Mr Keaveny said.
“The investors we will be talking with in the Gulf have a very long term perspective on these things.”
The UK is set to rely on investment flows as it looks in particular to fulfil its investment aspirations, especially those needed to meet the 2050 net-zero targets.
“We'll be looking at the infrastructure investment opportunity to say around transit will be the challenge that we've got of retrofitting 28 million homes by 2050,” he said.
“That is going to require investments at the levels beyond anything we've seen going [UK] into sustainable finance before and we will need investors such as the big sovereign wealth funds from the Middle East to help us achieve that.”
The government of Prime Minister Liz Truss has promised a shake-up of investment laws, taxation and infrastructure strategy to stimulate investment and raise the UK's annual gross domestic product growth.
Mr Keaveny applauded that plank of the financial strategy, unveiled by Chancellor Kwasi Kwarteng last Friday.
“Looking at where are I would welcome much of what the government announced last week, the announcements promoting investment, improving our competitiveness — there were issues resolved around the corporation tax in the announcement and that was very welcome,” he said.
The Lord Mayor of London post stretches back hundreds of years and Mr Keaveny, a lawyer born in Dublin, is the 693rd holder of the post.
Keeping the City's lines of communications open with the region has been a key concern of Mansion House, and on his third trip to the Middle East, Mr Keaveny is keen to promote the role of partnership in the climate transition.
“One of my big focus points this year has been around the just transition challenge and finding ways of financing the transition needs of the developing economies in a way that actually makes it possible for them,” he said.
“In places like Saudi Arabia, it is not a just transition issue, it is a serious financing transition. We're in a very good position with our combination of know-how and capital here in the UK, in London.”
With the legacy of the Cop26 Glasgow climate conference largely tied to developing new funding streams for climate investment, the prospect of the Cop27 meeting in Sharm El Sheikh now looms.
For Mr Keaveny, capitalising on that legacy is a big opportunity for the Egypt meeting and Cop28 in the UAE in 2023.
“I think it is the great achievement of Cop26,” he said. “The fact that the platform is there and that the financial institutions are looking for investable projects there is all that capital to be deployed, I have no doubt that looking at Cop27 and Cop28, getting that money flowing is going to be the big ask from the emerging nations,” he said.
The Lord Mayor, who hands on his ornate chains office to his successor in the next few weeks, observed that there is a much greater sense now than last October that work to complete a free trade agreement between the UK and the GCC is getting done.
In this, he sees the role of the new prime minister, who launched the process as international trade secretary, as providing a key impetus to deal.
“I think for the prime minister, this is an area she has a very personal focus on,” he said. “Many of the FTAs that are coming to fruition are negotiations she commenced in her role as international trade secretary.
“I think she will bring a personal interest in the successful conclusion of a number of those trade negotiations. So I think that will be that will be positive in terms of the GCC.”
