Bank of England's pay forecasts too optimistic, say economists

Mark Carney, governor of Bank of England, with Ben Broadbent, deputy governor for monetary policy, in London. (Reuters)
Updated 19 May 2017
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Bank of England's pay forecasts too optimistic, say economists

LONDON: The Bank of England’s (BoE) growth and wage forecasts are too rosy, according to economists polled by Reuters who were divided on what a large Conservative majority in June’s UK election would mean for Britain's divorce terms from the EU.
BoE Gov. Mark Carney said the forecasts hinged on a “smooth” transition to Brexit, as well as a big pick-up in wage growth and stronger exports and investment — things the central bank has predicted before, but which have largely not materialized.
Wage inflation would rise to 3.75 percent in 2019, the bank said. But all except four of the 26 economists polled this week who answered an extra question said that was unlikely or very unlikely. The median forecast was 3.1 percent.
“The risks have in our view shifted toward a hard Brexit, in which case the UK economy in 2018-2019 will be facing headline-grabbing reductions of UK operations by foreign corporations, relocation to continental Europe and lay-offs,” said Marius Gero Daheim at SEB.
“This environment does not bode well for pay increases in the order of 4 percent.”
British pay growth lagged inflation for the first time in 2-1/2 years in early 2017. Excluding bonuses, it rose 2.1 percent year-on-year in the three months to March, the weakest increase since July, data showed on Wednesday.
Since last June’s referendum vote to leave the EU, Britain's stance has hardened. Prime Minister Theresa May has said she expects divorce talks to be tough and EU leaders have agreed stiff terms.
Previous Reuters polls have concluded that talks turning fractious would pose the biggest risk to Britain’s economy and to the pound.
Hoping to build a dominant position in parliament and strengthen her hand in the EU talks, May has called a snap election for June 8.
The prime minister’s ruling Conservative party has a runaway lead in opinion polls, a result which could give a vote of confidence in a vision for Brexit which now sees the country outside the EU’s single market.
But most respondents, who answered an extra question, did not take that view. A dozen said if the opinion polls were correct and the Conservatives get a sizeable majority, there would be no effect on the success of Britain’s divorce negotiations.
Nine said that outcome would bring about a more constructive relationship while six said it would add distance between the two sides.
The central bank said last week that Britain’s economy would grow 1.9 percent this year, 1.7 percent next and 1.8 percent in 2019, but median estimates in the poll were all lower — respectively 1.7, 1.4 and 1.5 percent.
Only 10 of the 60 economists polled were as or more upbeat about growth prospects this year than the bank. For 2018, the ratio was 11 of 58.
“The BoE’s growth forecasts appear too optimistic. They are conditional on a very smooth Brexit, which is unlikely,” said Daniel Vernazza at UniCredit.
Sterling is down well over 10 percent from levels ahead of the June referendum and its weakness is stimulating domestic inflation. It is unlikely to move far in the coming year, according to a Reuters poll earlier this month.
The premier, meanwhile, said she would tighten laws on company takeovers and would ensure any foreign group buying important infrastructure did not undermine security or essential services if she wins next month’s national election.
“We will require bidders to be clear about their intentions from the outset of the bid process; that all promises and undertakings made in the course of takeover bids can be legally enforced afterwards; and that the government can require a bid to be paused to allow greater scrutiny,” the Conservative Party said in its election policy document.
It also said the Conservatives “do not believe in untrammeled free markets” as it set out plans to cap rising energy costs for consumers.
The prime minister continues to believe that no Brexit deal would be better than a bad deal, according to the document.


Saudi Arabia has lion’s share of regional philanthropy

Updated 26 April 2018
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Saudi Arabia has lion’s share of regional philanthropy

  • Kingdom is home to three quarters of region's foundations
  • Combined asets of global foundations is $1.5 trillion

Nearly three quarters of philanthropic foundations in the Middle East are concentrated in Saudi Arabia, according to a new report.

The study, conducted by researchers at Harvard Kennedy School’s Hauser Institute with funding from Swiss bank UBS, also found that resources were highly concentrated in certain areas with education the most popular area for investment globally.

That trend was best illustrated in the Kingdom, where education ranked first among the target areas of local foundations.

While the combined assets of the world’s foundations are estimated at close to $1.5 trillion, half have no paid staff and small budgets of under $1 million. In fact, 90 percent of identified foundations have assets of less than $10 million, according to the Global Philanthropy Report. 

Developed over three years with inputs from twenty research teams across nineteen countries and Hong Kong, the report highlights the magnitude of global philanthropic investment.

A rapidly growing number of philanthropists are establishing foundations and institutions to focus, practice, and amplify these investments, said the report.

In recent years, philanthropy has witnessed a major shift. Wealthy individuals, families, and corporations are looking to give more, to give more strategically, and to increase the impact of their social investments.

Organizations such as the Bill and Melinda Gates Foundation have become increasingly high profile — but at the same time, some governments, including India and China, have sought to limit the spread of cross-border philanthropy in certain sectors.

As the world is falling well short of raising the $ 5-7 trillion of annual investment needed to achieve the UN’s Sustainable Development Goals, UBS sees the report findings as a call for philanthropists to work together to scale their impact.

Understanding this need for collaboration, UBS has established a global community where philanthropists can work together to drive sustainable impact.

Established in 2015 and with over 400 members, the Global Philanthropists Community hosted by UBS is the world’s largest private network exclusively for philanthropists and social investors, facilitating collaboration and sharing of best practices.

Josef Stadler, head of ultra high net worth wealth, UBS Global Management, said: “This report takes a much-needed step toward understanding global philanthropy so that, collectively, we might shape a more strategic and collaborative future, with philanthropists leading the way toward solving the great challenges of our time.”

This week Saudi Arabia said it would provide an additional $100 million of humanitarian aid in Syria, through the King Salman Humanitarian Aid and Relief Center.

The UAE also this week said it had contributed $192 million to a housing project in Afghanistan through the Abu Dhabi Fund for Development.