Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Analysis: Britain takes fight to restore investor faith into 2023

Analysis: Britain takes fight to restore investor faith into 2023

Major investors are rethinking their support for Britain's economy following months of political turmoil and persistent Brexit uncertainties, as experts predict its recovery from a global recession will be slow and painful.

While governments worldwide are grappling with high inflation and low growth, UK policymakers are still rebuilding fiscal and political credibility following the brief, chaotic premiership of Liz Truss.

Top financial industry figures say that even with Truss gone, a tight labour market, low business investment and weak exports mean the economy will lag peers next year. Worries about growth are leading some investors to limit their holdings of the pound and British debt.

"For the time being, we think the risks are too high compared to the rewards," said Vincent Mortier, chief investment officer at Amundi, Europe's largest fund manager, which manages 1.9 trillion euros ($1.98 trillion) in assets.


Foreign investors have traditionally been attracted by Britain's strong rule of law, stable governance and thriving financial and professional services sector. But an open economy means any change in perception can have a large impact.

The fact that Truss - elected by her party, not the country - could pile pressure on the Bank of England and sow mayhem in markets, has heaped scrutiny on Britain's politics and finances.

Her replacement by ex-finance minister Rishi Sunak calmed UK assets, but investors are still brooding over the near-collapse of pension funds and how close Britain came to a financial disaster entirely of its own making.

UK equity funds saw their second-biggest monthly outflows on record in November, data from funds network Calastone shows, a sign investors remain wary since the September crash.

Sterling remains down 9% against a strong U.S. dollar and 3.5% lower versus the euro in what is set to be its worst year since the Brexit vote roiled markets in 2016.

Like other governments, Britain - which plans to raise just over 300 billion pounds, mostly by selling bonds in financial year 2023/24 - has seen borrowing costs rise sharply in 2022.

The benchmark 10-year gilt yield is now above 3% , up more than 200 basis points - in line with U.S. and German yields, but making 2022 the worst year for UK government debt since 1994.

The Bank of England's sales of bonds from its balance sheet will put further pressure on gilts prices by increasing supply.


LONG RECESSION


Britain is expected to endure a protracted recession, with official forecasts pointing to a 1.4% contraction next year. In March, before the full impact of the Ukrainian war was felt, the projection was for 1.8% growth.

Ratings agency Moody's sees UK government debt remaining above 100% of gross domestic product for years.

Saker Nusseibeh, CEO, International at Federated Hermes, which managed $669 billion in assets at Dec. 31, said Truss's botched plan for Britain to borrow its way out of its slow growth rut had inflicted heavy reputational damage overseas.

But he told Reuters that Truss deserved credit for acknowledging something radical needed to happen to halt years of stagnant growth.

"While the government attends to fixing past problems, the focus on the big picture long-term is missing from the rhetoric right now," said Nusseibeh, calling for stronger trade ties with the United States and European Union, which Britain left in 2020.

TS Lombard economist Dario Perkins, credited with coining the term "moron premium" to describe the repricing of UK assets under Truss, told Reuters nobody knew how to "fix the UK today".

"I think most investors realise that Brexit has been a sort of disaster and that the Bank of England can't really solve the problems we face," he said.


'KINDNESS OF STRANGERS'


When former BoE Governor Mark Carney warned in 2016 that Britain was reliant on the "kindness of strangers", foreign direct investment (FDI) represented nearly half the net inflows of funds from abroad.

In the latest data, up to the second quarter of this year, FDI represented more than half the net outflow - a result of strong UK investment abroad but weak inward investment too. The data may also be subject to pandemic-related disruption.

"The UK does look and feel like it's a different bet for international investors than it did 10 years ago," Vivek Paul, UK chief investment strategist at the BlackRock Investment Institute, part of the $10 trillion money manager, told Reuters.

Britain has increasingly financed its enormous current account deficit by selling financial services and bonds to the world, rather than attracting FDI into UK companies.

There are also concerns about how much companies in Britain are prepared to invest in equipment, buildings and staff training to spur growth from the bottom up.

Its business investment performance now sits 6% below its level in mid-2016 as of the second quarter of 2022 - compared to increases of 23% for France, 19% for the United States and 4% for Germany, according to a Reuters analysis of OECD data.

That underperformance on investment means productivity is lagging, with the Confederation of Business Industry expecting output per worker to be 2% below pre-pandemic levels by end-2024. It has warned of "a lost decade of growth".

Two years before a general election must be held, Sunak says the government is listening.

As well as hiking taxes and restraining spending to address the public finances, he has mobilised finance minister Jeremy Hunt to protect London's position as Europe's hub for trading and banking.

A makeover of the financial rulebook is aimed at better using the trillions of pounds moving through the City of London to drive growth and keep tax receipts flowing in.

New freedoms enabling insurers to invest in private sector projects such as infrastructure, and reforms to listings rules should meanwhile help foster budding technology, health and green energy firms.

Stephen Welton, executive chairman of major growth capital investor BGF, said attracting foreign investment was like a global competitive sport - one that Britain had previously excelled at.

"You need all the advantages and you need to play your hand well," he told Reuters. "So we've handicapped ourselves in recent years with continuing uncertainty and we have to recognise that."

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
OpenAI CEO Sam Altman praises the rapid progress of Chinese tech companies.
Poland's President Karol Nawrocki ENDS support for Ukrainian citizens:
Italy's PM Giorgia Meloni highlights record employment and economic growth
Chancellor Friedrich Merz Re-elected as CDU Leader, Opposes AfD Influence
Trump Directs Government to Release UFO and Alien Information
Trump Signs Global 10% Tariffs on Imports
UK Government Considers Law to Remove Prince Andrew from Royal Line of Succession
Two teens arrested in France for alleged terror plot.
US Supreme Court Voids Trump’s Emergency Tariff Plan, Reshaping Trade Power and Fiscal Risk
Greek Prime Minister Kyriakos Mitsotakis advocates for a ban on minors using social media.
Meanwhile in Time Square, NYC One of the most famous landmarks
Jensen Huang just told the story of how Elon Musk became NVIDIA’s very first customer for their powerful AI supercomputer
Former British Prince Andrew Arrested on Suspicion of Misconduct in Public Office
Former President Yoon Suk Yeol Sentenced to Life in Prison for Abuse of Authority
Unitree Robotics founder Wang Xingxing showcases future robot deployment during Spring Festival Gala.
German Chancellor Friedrich Merz calls for real name use on social media.
Italian Police Arrest Man After Alleged Attempt to Abduct Toddler at Bergamo Supermarket, Child Hospitalised With Fractured Femur
British Tourist Arrested at Hong Kong Airport After Meltdown and Vandalism
European Commission Plans Purchase Incentives Limited to Vehicles Manufactured Largely in the EU
French District of Pas-de-Calais Introduces Immediate License Suspension for Drivers Using Mobile Phones
Volkswagen Targets €60 Billion in Cost Reductions as Sales Decline and Global Pressures Intensify
Eighty-Year-Old Lottery Winner Sentenced to 16.5 Years for Drug Trafficking
Rubio Calls for Sweeping U.N. Reform, Saying It Has Failed to End Wars in Gaza and Ukraine
10,000 Condoms Distributed at Winter Olympics 2026 Athlete Village Depleted Within 72 Hours
Poland's President Advocates for Evaluating Independent Nuclear Weapons Development
Mayor of Serdobsk in Russia’s Penza Region Resigns After Housing Certificates Granted to Migrant Family Trigger Public Outcry
China’s EV Makers Face Mandatory Return to Physical Buttons and Door Handles in Driver-Distraction Safety Overhaul
UK Green Party Considering Proposal to Legalize Heroin for an Inclusive Society
OpenAI and DeepCent Superintelligence Race: Artificial General Intelligence and AI Agents as a National Security Arms Race
We will protect them from the digital Wild West.’ Another country will ban social media for under-16s
Heineken announces cut of 6,000 jobs due to declining beer demand
Apple iPhone Lockdown Mode blocks FBI data access in journalist device seizure
Belgium: Man Charged with Rape After Faking Payment to Sex Worker
KPMG Urges Auditor to Relay AI Cost Savings
Canada Opens First Consulate in Greenland Amid Rising Geopolitical Tensions
China unveils plans for a 'Death Star' capable of launching missile strikes from space
Investigation Launched at Winter Olympics Over Ski Jumpers Injecting Hyaluronic Acid
U.S. State Department Issues Urgent Travel Warning for Citizens to Leave Iran Immediately
Wall Street Erases All Gains of 2026; Bitcoin Plummets 14% to $63,000
Eighty-one-year-old man in the United States fatally shoots Uber driver after scam threat
Political Censorship: French Prosecutors Raid Musk’s X Offices in Paris
AI Invented “Hot Springs” — Tourists Arrived and Were Shocked
France Begins Phasing Out Zoom and Microsoft Teams to Advance Digital Sovereignty
Tech Market Shifts and AI Investment Surge Drive Global Innovation and Layoffs
Global Shifts in War, Trade, Energy and Security Mark Major International Developments
Markets Jolt as AI Spending, US Policy Shifts, and Global Security Moves Drive New Volatility
Tesla Ends Model S and X Production and Sends $2 Billion to xAI as 2025 Revenue Declines
Starmer Signals UK Push for a More ‘Sophisticated’ Relationship With China in Talks With Xi
Shopping Chatbots Move From Advice to Checkout as Walmart Pushes Faster Than Amazon
The AI Hiring Doom Loop — Algorithmic Recruiting Filters Out Top Talent and Rewards Average or Fake Candidates
×