The Times - UK (2022-05-24)

36 2GM Tuesday May 24 2022 | the times

Business

The European Central Bank is likely to
raise interest rates from negative levels
in July and to reach 0 per cent by the
end of September, Christine Lagarde,
its president, has said.
There have been growing calls
among members of the governing
council for the ECB to raise interest
rates from their present -0.5 per cent,
which means banks are charged to
deposit cash with the central bank
rather than being offered a return. The
rate has not changed since 2014, despite
inflation at almost four times the
central bank’s target at 7.4 per cent,
driven by surging prices of fuel and
energy.
In a blog post, Lagarde has suggested
that the ECB will raise rates twice, by
0.25 percentage points each time, at its
meetings in July and September. “I
expect net purchases under the [asset-
purchase programme] to end very early
in the third quarter,” she said. “This
would allow us a rate lift-off at our
meeting in July, in line with our forward
guidance. Based on the current out-
look, we are likely to be in a position to
exit negative interest rates by the end of
the third quarter.”
Lagarde, who has led the ECB since
2019, said this month that she expected
the bank to stop its bond-buying
stimulus programme “early in the third
quarter” and to raise rates “some time”
after that. This could mean “a period of
only a few weeks”. Actions that showed
the bank was committed to price
stability would be important to hold
down inflation expectations among
households and businesses, she said in
a speech in Slovenia.
The bank remains behind its counter-
parts in Britain and the United States,
where rates have reached about 1 per
cent with inflation at 40-year highs. The
Bank of England became the first of the
world’s biggest central banks to start
raising rates in December last year.
“If we see inflation stabilising at 2 per
cent over the medium term, a progres-

Workers set

to jump ship

for more pay

Arthi Nachiappan

Almost one in five British workers

expect to switch to a new job in the

coming year as they seek higher pay.

Eighteen per cent said they were very

likely to switch to a new employer in the

next 12 months, with a desire for a pay

rise driving 72 per cent of those employ-

ees. More than a quarter, or 27 per cent,

plan to ask for more money next year,

according to the survey by PwC of

about 2,000 UK workers and a further

50,000 from across the world.

Those in the technology sector are

most likely to ask for a rise and those in

the public sector least likely. Of techno-

logy workers, 42 per cent plan to ask for

more, compared with 12 per cent in jobs

such as education or healthcare.

Generation Z and millennials, who

typically are under 40, are more likely

to ask for a rise or a promotion than

older counterparts. Nearly half of UK

workers would change jobs to have the

option to work both at home and in the

office in a “hybrid” model of working.

Andrew Bailey, the Bank of England

governor, has called for workers to

avoid asking for big pay rises and for

companies to avoid setting prices too

high to avoid increasing inflation.

More than 450,000 workers have

quit work since the start of the pan-

demic, with over-50s accounting for

more than half of those leaving em-

ployment. About 281,000 older workers

have left their jobs or taken early retire-

ment since the end of 2019, according to

the Office for National Statistics.

The main reason given was long-

term illness. Around 350,000 have left

work due to sickness, which Bank offi-

cials said could be linked to long Covid,

among other conditions.

There are now more than a million

people “missing” from the labour force

compared with before the pandemic

and because of this the number of job

vacancies has overtaken the number of

unemployed for the first time since

records began. Vacancies are at a record

high of almost 1.3 million.

Kevin Ellis, chairman and senior

partner at PwC UK, said: “Highly

skilled workers are in hot demand and

employers can’t be complacent.

Employees will vote with their feet if

their expectations on company culture,

reward, flexibility and learning are not

being largely met.”

European bank

to end negative

interest rates

‘in September’

Arthi Nachiappan
Economics Correspondent
Ben Martin Senior City Correspondent

sive further normalisation of interest

rates towards the neutral rate will be

appropriate,” Lagarde said.

She added that rates could rise fur-

ther if the prices continued to rise. “If

the euro area economy were over-

heating as a result of a positive demand

shock, it would make sense for policy

rates to be raised sequentially above the

neutral rate,” she said.

However, she warned that the pace

and sizes of those rate rises were not yet

clear because Europe faced supply

shocks from China’s pandemic-related

restrictions and supply disruptions

arising from the Russia-Ukraine war.

“This creates more uncertainty

about the speed with which the current

price pressures will abate, about the

evolution of excess capacity and about

the extent to which inflation expecta-

tions will continue to remain anchored

at our target,” she said.

Hwer remarks came as the ECB said

there were still “significant” gaps in

companies’ climate risk disclosure

practices that it said strengthened the

case for international standards.

“Although there has been an

improvement in the climate-related

disclosures of European banks since

2020, banks are not fully meeting

supervisory expectations and gaps

remain, especially regarding banks’

emission-reduction targets and interim

milestones,” officials at the ECB said in

a publication ahead of the release of its

main Financial Stability Report

tomorrow. The Bank of England is also

due to release the results of its first

climate stress test of British banks and

insurers today that assesses how they

would cope with three different

scenarios, including the risks that

would arise if governments took no

action to tackle carbon emissions.

The ECB said in its report that capital

markets “remain susceptible to green-

washing” and that “only the most credi-

ble green bonds seem to benefit from

cheaper funding”. It warned: “Green-

washing also poses a risk to financial

stability because it could lead to an

undervaluation of transition risk and to

potential fire-sales of green bonds.”

The boost to America’s biggest banks

from rising interest rates has reached

JP Morgan, the largest of them all,

which yesterday increased its guidance

for net interest income from its main

business this year to more than $56 bil-

lion.

The Wall Street powerhouse had said

in January that it expected to generate

net interest income, excluding its

market business, of $50 billion this year,

before quickly increasing its forecast to

at least $53 billion the following month.

Net interest income is the difference

between the revenue that a bank earns

from loans and the rate it pays to raise

deposits.

The New York-based group issued its

latest estimate before what was a

highly anticipated investor day yester-

day. Jamie Dimon, its long-serving

boss, has rattled investors with his

strategy recently and the event was

viewed by Wall Street analysts as an

Interest rates boost JP Morgan forecasts

opportunity to assuage the market’s

concerns.

JP Morgan, which can trace its roots

to the founding of the Manhattan Com-

pany in 1799, has grown to become a

financial services giant. It runs a power-

ful investment banking business, while

almost half of America’s households are

customers of its Chase consumer

division, which it recently expanded

into Britain.

Dimon, 66, who has led the group

since 2005, is one of the most highly

rated executives in the banking

industry. Yet recently he has faced

questions over his plans for the busi-

ness after JP Morgan announced in

January that it would increase spend-

ing on technology and other initiatives

by nearly a third to about $15 billion this

year, with overall expenses expected to

climb by 8 per cent to about $77 billion.

It said this would mean it was unlikely

to hit its medium-term target of a 17 per

cent return on tangible common equity

— a key measure of profitability — this

year, which had sent its shares down.

JP Morgan said yesterday that its

profitability target “may be achieved in

2022”, which, along with its improved

outlook for net interest income, helped

to drive a rally for its shares, and those

of the wider American banking sector.

JP Morgan’s stock closed 6.2 per cent, or

$7.26, up at $124.60 last night.

While banks are benefiting from

rising interest rates, there are worries

that the global economy could slide

into recession if borrowing costs rise

too quickly, which would hurt lenders.

Dimon said the US economy was

“strong” but there were “big storm

clouds”, although they may dissipate.

Ben Martin Banking Editor
IMF warns of food shock

Continued from page 33
0.1 per cent. That is a steep fall from the
1.2 per cent increase registered at the
end of 2021, when the global economy
rebounded from the end of lockdown
measures.
However, the UK was a relative
bright spot among the G7 at the start of
the year, growing by 0.8 per cent in the
first three months of the year, the
OECD said. By contrast, the US eco-
nomy had shrunk 0.4 per cent in the
quarter, Italy declined by 0.2 per cent
and growth fell stagnant in France.
“The United Kingdom exceeded its
pre-pandemic level of GDP for the first
time in the first quarter of 2022, by
0.7 per cent,” according to the OECD’s
latest Economic Outlook.
Central bankers have warned that in-
creasing interest rates has a limited
effect on quelling prices when inflation

is being driven by external factors such

as supply disruptions. The Bank of

England has raised rates four consecu-

tive times and the European Central

Bank is on course for its first rate rise

since 2011 in July.

6 Andrew Bailey said in a podcast that

Bank of England staff could continue to

work from home, warning that it could

struggle to recruit workers if it enforced

a policy of returning to the office.

He told Jimmy’s Jobs of the Future that

he wanted more staff to come into the

office because of the benefits of face-to-

face conversations, but said that hybrid

working arrangements had become an

important benefit, given the tightness

in the labour market. “As employers,

we’re all having to face the fact that

we’re having to recruit people in a job

market where that is increasingly part

of the work-life balance,” he said.

S

uperdrug has

frozen the

price of 30

more of its

own-brand

products for a year

after announcing a

partnership with Jack

Monroe, the food

blogger who has

campaigned on the

issue of rising prices

(David Byers writes).

The 130 items now on

the list include

toothpaste, deodorant

and cleansing wipes.

Monroe, 33, said

the cost of personal

care essentials was

rising steeply, “which

leaves many people

unable to afford the

basics needed for

personal health

hygiene and dignity.

“It’s embarrassing

to not be able to

afford things that

others might take for

granted, like soap,

tampons, deodorant,

toothpaste and

shampoo. Hygiene

poverty is fast

becoming a hidden

impact of the cost-of-

living crisis.”

The health and

beauty retailer, part

of the CK Hutchison

Holdings empire

controlled by Li Ka-

shing, the Hong Kong

billionaire, has about

800 stores in Britain.

It said Monroe would

help its customers to

understand how to

shop more cheaply.

Superdrug

calls in food

campaigner

KEN MCKAY/ITV/SHUTTERSTOCK

$56bn

Predicted net interest income from the

bank’s main business this year

Source: JP Morgan