UK consumer slowdown underway, caution needed on rates-Bank of England’s Vlieghe

A consumer slowdown was already underway in Britain, says Bank of England rate-setter. (AFP)
Updated 05 April 2017

UK consumer slowdown underway, caution needed on rates-Bank of England’s Vlieghe

LONDON: Bank of England rate-setter Gertjan Vlieghe said on Wednesday a consumer slowdown was already underway in Britain and was likely to worsen, underscoring the need for caution on interest rates.
Vlieghe, who is considered one of the central bank’s most dovish policymakers, repeated his view that a premature rate hike was more dangerous than one that came too late.
He also said weak wage growth meant the ongoing rise in inflation, pushed up by the fall in the value of the pound since last June’s Brexit vote, was unlikely to turn into something more damaging.
“The consumer slowdown, which initially did not materialize, now appears to be underway,” Vlieghe said in a speech delivered at the offices of Bloomberg in London.
“Given the hit to real income from a mix of subdued wage growth and rising inflation, I think the slowdown is more likely to intensify than fade away.”
The BoE is widely expected to keep interest rates at their record low throughout this year and possibly until 2019 as it steers the British economy through the uncertainty linked to the exit from the EU.
However, one rate-setter — Kristin Forbes — voted last month for a rate hike and others said they might follow suit soon if there were signs of inflation picking up by more than expected or that economy was maintaining its momentum of 2016.
To consider a rate hike, Vlieghe said he would need to see evidence that inflation pressures were spreading beyond the effect of sterling’s depreciation, or that there was a pick-up again in household spending and borrowing.
Vlieghe also warned that a “more material” fall in business spending might take place in response to uncertainty around Brexit, given the two-year clock on the negotiations with the European Union had just started.
In his speech, he addressed criticism of the BoE for its warning, made before last year’s Brexit vote, that Britian’s economy would face a quick and sharp hit in the event of a decision to leave the EU, something which has not yet happened.
Vlieghe said the BoE had been less pessimistic than many other forecasters and, in any case, its decision to cut rates in August had been the right one. “I would take exactly the same action again if faced with the same circumstances,” he said.

Bank jobs go as HSBC and Emirates NBD reduce costs

Updated 14 min 59 sec ago

Bank jobs go as HSBC and Emirates NBD reduce costs

  • Others have also reduced headcount amid economic downturn and property market weakness

DUBAI: HSBC Holdings has laid off about 40 bankers in the UAE and Emirates NBD is cutting around 100 jobs, as banks in the Arab world’s second-biggest economy reduce costs.

The cuts come amid weak economic growth, especially in Dubai, which is suffering from a property downturn.

HSBC’s redundancies came after the London-based bank reported a sharp fall in earnings and warned of a costly restructuring, as interim CEO Noel Quinn seeks to tackle its problems head-on.

HSBC has about 3,000 staff in the UAE, part of a nearly 10,000-strong workforce in the Middle East, North Africa and Turkey.

The cuts at Dubai’s largest lender Emirates NBD came in consumer sales and liabilities, one source said, while a second played down the significance of the move.

HSBC and Emirates NBD declined to comment.

“The cuts are part of cost cutting and rationalizing to drive efficiencies in a challenging market,” the second source said.

Other banks have also reduced staff this year. UAE central bank data shows local banks laid off 446 people in the 12 months until the end of September. Foreign banks added staff in the same period.

Staff at local banks account for over 80 percent of the 35,518 banking employees in the country.

The merger between Abu Dhabi Commercial Bank, Union Commercial Bank and Al Hilal Bank saw hundreds of redundancies.

Commercial Bank International (CBI) said it would offer voluntary retirement to employees in September, which sources said saw over 100 departures. Standard Chartered, too, cut over 100 jobs in the UAE in September.

Rating agency Fitch warned in September a weakening property market would put more pressure on the UAE’s banking sector.