Updated: Nov 6, 2022
This is going to hurt for two more years at least said Bank of England governor Andrew Bailey as he administered the biggest spike in interest rates since 1989. This is the eighth rise in the series, with the base rate edging from 2.25% to 3%.
There are two small crumbs of comfort for businesses and households in Thursday's announcement, said the Institute of Export and International Trade (IoE&IT). The downturn won’t be as deep as many in the past and the Monetary Policy Committee (MPC) does not expect rates to go as high as markets are predicting. Sceptics might say the wrap on those Comfort Crumbs might be subject to tax (see our report on Plastic Packaging tax).
Expect rates to peak at 4.75% and not pass 5% or 6%, said MPC, disputing the analysts’ forecasts. Nicholas Blenkinsop, trade and customs specialist at the IOE&IT is bullish and says targeting inflation makes sense. Inflation means traders have less disposable income to make their purchases, he reasoned. Higher interest rates cause the exchange rate to rise, which attracts more foreign capital, which gives investors a greater return.
“Lower exchange rates mean UK imports become more expensive as traders need more Sterling to purchase the currency required to pay overseas suppliers,” said Blenkinsop, “[but] a low exchange rate makes exports more competitive for UK traders.”
However, there is good news for the financial services industry. Last year’s trade figure of £38.4bn between the UK and Switzerland could be bettered, Credit Suisse, Deloitte, HSBC and UBS have argued. They’ve lobbied ministers to strike a formal agreement with our respective finance sectors to trade more.
A mutual recognition agreement in financial services is a ‘top priority’ for Chris Hayward, policy chair of the City of London Corporation and a formal deal is ‘pragmatic sense’ for Jos Dijsselhof, chief of Swiss financial infrastructure company SIX. Almost half of the value of trade (£18.4bn) between the nations comes from services. “Both nations are renowned global financial centres, with a shared cultural commitment to high regulatory standards, market integrity and investor protection,” said Dijsselhof.
Officials from both governments met on Tuesday (November 2) to discuss the mechanics of a deal and securing mutual recognition in financial services. Another imperative is rolling over the Services Mobility Agreement which is due to expire in January 2023, according to a report in Politico, which cites the Professional & Business Services Council (PBCS).
Prime Minister Rishi Sunak has stalled on the proposed bonfire of EU regulations for the financial services sector and wants more time “to understand what is an important and detailed matter”, reports the FT. City regulators have warned that allowing ministers to overrule them would undermine their independence and weaken confidence in the City as a financial centre.
The sector most likely to be backed by the Department for International Trade (DIT) is green technology, said international trade minister Kemi Badenoch who called on Britain to invest more. According to the DIT's own figures on net zero related investment projects, these have brought £19.8 billion of capital expenditure to the UK in the past two years. Around 11,000 green jobs were created by 148 projects, the DIT figures show. Badenoch said trade and investment could grow the economy and create jobs.