British consumers battered by Brexit inflation

Official data on Friday showed retail sales volumes fell by 0.3 percent month-on-month in January, much weaker than economists’ forecasts in a Reuters poll for a 0.9 percent increase. (Reuters)
Updated 17 February 2017
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British consumers battered by Brexit inflation

LONDON: British shoppers unexpectedly cut back on their spending in January as last year’s Brexit vote pushed up inflation, official data showed on Friday, the strongest sign to date that the country’s economy is heading for a slowdown.
Consumers were barely fazed last year by June’s decision to leave the EU. But they are turning more cautious with prices rising quickly in response to the post-referendum slump in the value of the pound and higher oil prices.
Official data on Friday showed retail sales volumes fell by 0.3 percent month-on-month in January, much weaker than economists’ forecasts in a Reuters poll for a 0.9 percent increase. No forecaster had expected a fall.
“The theme for most forecasters this year is that consumer spending is going to suffer as higher prices erode real incomes. But I do not think anyone would have expected the pace of spending to have suffered so much so soon,” Alan Clarke, an economist with Scotiabank, said.
The pound fell sharply and was down half a percent against the US dollar after the data. British government bond prices, which like the currency are sensitive to expectations about future Bank of England (BoE) interest rate decisions, rose.
Friday’s data underscores why the BoE has signaled it is in no rush to raise record-low rates as it expects rising inflation will hurt the spending power of households.
The Office of National Statistics (ONS) said retail prices rose 1.9 percent in January compared with a year ago, the most since July 2013 and up sharply from December’s 0.9 percent. The rise in motor fuel prices, up 16.1 percent, was the biggest since September 2011.
As well as weaker sterling, fuel prices have been pushed up by an increase in global oil prices.
Monthly retail sales figures can be volatile but over the three months to January sales were also down, falling by 0.4 percent in volume terms, their weakest performance since November 2013.
“In the three months to January 2017, retail sales saw the first signs of a fall in the underlying trend since December 2013,” ONS statistician Kate Davies said. “The evidence suggests that increased prices in fuel and food are significant factors in this slowdown.”
Compared with January 2015, sales rose 1.5 percent, their weakest performance since November 2013.
A sharp fall in sales in December was worse than previously estimated, the ONS also said.
There had been signs from private surveys before Friday’s official data that consumers turned more cautious in January while the BoE has said consumer borrowing slowed in December.
ONS data published earlier this week showed inflation hitting its highest level since mid-2014 while growth in the earnings of workers slowed.


All-American banker heads back to the Kingdom

Updated 21 April 2018
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All-American banker heads back to the Kingdom

  • "The implementation and execution of Vision 2030 will produce global companies for Saudi Arabia, and we can help in that process," said Citigroup CEO
  • "The government has a lot on its plate and privatization takes a long time to set up. Privatization is one of those things that you only want to do once,”

If anybody deserves the description “all-American”, it is surely Mike Corbat, chief executive officer of Citigroup.

New England origins, a Harvard education, Ivy League American footballer and a Wall Street career are all evidence of the fact he was very definitely “born in the USA”, as is the in-bank nickname of “Clark Kent” — the alter-ego of Superman — due to his athletic physique and spectacles.

But last week Corbat was turning his mind away from the USA and toward Saudi Arabia, as the bank formally ended a 14-year self-imposed exile from the Kingdom with a ceremony at its new offices in Riyadh, symbolizing its return to the lucrative markets it first entered in the 1950s, among the first American banks to do business in the region.

Corbat took some time out of the day’s celebrations — a formal ribbon-cutting alongside Ibrahim Al Omar, governor of the Saudi Arabian General Investment Authority, and an elite dinner in the ballroom of the Four Seasons Hotel in Kingdom Tower — to talk exclusively to Arab News about Citi’s plans for the Saudi business at a time of rapid transformation in the Kingdom and the region.

“I am absolutely positive about the economic prospects for this region. We are in 13 countries here, with 2,500 employees, focusing on trade and business, with some consumer presence. The implementation and execution of Vision 2030 will produce global companies for Saudi Arabia, and we can help in that process. Citi can service some of their needs as they expand globally,” he said.

Citi withdrew from Saudi Arabia in 2004 in the aftermath of the 9/11 terrorist attacks in the USA, in a decision later described by executives as “a mistake.” Even before the enormous opportunities of Vision 2030 persuaded the bank it had to have a formal presence again in the Kingdom, and a license from the Capital Markets Authority (CMA) to pursue investment banking and other business there, the bank was back on the scene.

In 2015 it helped Saudi Aramco to raise multi-billion dollar loans, and advised the oil giant on Asian deals. The following year, which saw the formal unveiling of Vision 2030, Citi was involved in the groundbreaking $17.5 billion bond issue that marked the Kingdom’s debut on global capital markets.

Citi was back, but needed a CMA license to win more lucrative business in the big domestic economic transformation under way. That was finally granted in April of last year, and Carmen Haddad, a long serving Citi executive with extensive experience of the Middle East, was made head of the new Saudi operation.

“We’ve been at the front and center of the sovereign bonds drive Saudi has been doing for the past couple of years, and also with syndicated loans. But with the CMA license we can really show our worth. We can help with all future debt and equity transactions,” Corbat said.

Vision 2030 aims to reduce the Kingdom’s dependence on oil, but also to increase the contribution of the private sector to the national economy, and this is one area where Citi feels it can use its global experience. The bank has advised governments around the world on privatization strategies, and Saudi has a privatization schedule that ranks among the largest in history.

The timing and scale of the program is still unclear. Last year minsters put a value of $200bn on the program, but officials in Riyadh last week were talking more in the $60bn to $70bn range. And investors are still waiting for the first big sell-off of a state company. But Corbat insisted Citi would be ready to get involved when the time is right.

“Privatization is obviously a top priority of the Vision 2030 strategy, and we can bring our expertise to bear in this. I think it is right to take your time over something as significant as the privatization program. The government has a lot on its plate and privatization takes a long time to set up. Privatization is one of those things that you only want to do once,” he said.

By far the biggest element of the drive toward a more private sector-focused economy is the plan to sell shares in the Kingdom’s “jewel in the crown”, Saudi Aramco. Citi is among a small group of top global banks vying for business in the Aramco sell-off.

Originally planned as a big international initial public offering (IPO) by the end of this year, valuing the company at $2 trillion, doubts have begin to creep in over the valuation figure, and over the venue for what promises to be the biggest IPO in history. One suggestion is that Aramco will go only for a listing on the Tadawul exchange in Riyadh.

“I don’t know the timing of the IPO. Maybe they [the Saudi authorities] will want to start locally, in which case they have to be sure the capacity and liquidity are there,” Corbat said.

He believes that recent improvements to the market infrastructure in Saudi Arabia — which look set to see the country included in index provider MSCI’s widely-tracked Emerging Markets index from as early as next year — could make an “exclusive” IPO on Tadawul more attractive.

“The MSCI upgrade to emerging markets status will create more liquidity, and foreign investors will have to play their role,” he said.

“All the big reforms that have taken place on the Riyadh market recently have certainly made it a friendlier place for foreign investors. The CMA has been through more change than ever, and it’s a better place for that. The CMA over the past two years has proven to be progressive and consultative,” he added.

Citi found itself indirectly involved in the big anti-corruption campaign of last year, when their long-term partner and shareholder, Price Alwaleed Bin Talal, was among the businessmen detained in the Ritz Carlton hotel in Riyadh.

Corbat is reluctant to comment on the Kingdom’s internal affairs, though he did say that foreign direct investment would not be hit by the anti-graft drive. “I don’t think FDI has been or will be affected negatively by the anti-corruption campaign. Saudi Arabia is already the biggest economy in the region with only limited foreign investment. Imagine how far it could go with more,” he said.

On Alwaleed, he said: “He has been a shareholder since the early 1990s, and he has been a great shareholder, a loyal voice of support and reassurance. We’ve been fortunate to be able to count him as one of our shareholders. In all our dealings with him I’ve found him to be straightforward and transparent.”

Corbat was one of the top American executives who met with Saudi officials on the recent royal visit to the USA, intended in part to counter any adverse investor sentiment from the anti-corruption arrests, and was impressed by what he saw.

“The visit to the USA by the Crown Prince was extremely well received. The whole Saudi delegation impressed us with their drive and commitment to the transformation process. It was a very successful exercise for Saudi Arabia,” he said.

With 35 years at Citi under his belt, including responsibly for unwinding Citi’s “toxic” assets after the financial crisis, and wide ranging experience of the bank’s international operations, he is well placed to gauge global geo-politcal risk.

He sees some threat to the world financial system from the end of quantitative easing, which he called a “renormalization of the global economy”, and a more limited challenge to world economies from possible “trade wars” between the USA and China.

“I think it’s fair to say that if we did have a serious trade war, it would have an effect. But it would not be the end of trade. I think it’s more likely to redraw the trade lines of the world. Trade flows would move away from the big blocks and go through other areas, like Africa and other places for example,” he said.

On regional risks, always a factor in business and financial decisions in the Middle East, he said: “I think they are within acceptable limits and I don’t think they will go beyond that. The region is the leading center for oil and gas so what happens here has global implications,” he said, though with the caveat that the effects of a prolonged trade was on the “bookend” economies of the USA and China could have a negative impact on global commodity prices.

All-American Corbat may be, but Citi’s return to the Kingdom will just not be an exercise in stuffing US executives into the top jobs in Riyadh. The firm is committed to achieving 85 percent Saudi employment levels at its new office, and is already well on the way to achieving that.

“The market for talent in Saudi Arabia is extremely competitive, but we think we have a very strong appeal for candidates. We are very proud of our ability to invest in and train, and to improve home grown talent,” Corbat said.