A recovery in UK consumer confidence alongside lower interest rates are reasons for cautious optimism, an economics expert told a meeting of treasurers in November. However, economic growth across Europe remains low compared to other regions, particularly the US, in part as a result of uncertainty caused by the proximity of the war in Ukraine and the ongoing impact of energy shocks.
Speaking at the recent ACT’s Treasury Forum, HSBC’s chief European economist Simon Wells said he expected consumers to spend more in the future, which will help fuel economic growth. “I'm quite optimistic that real incomes are still expected to grow and, particularly if we’ve got some political uncertainty resolving itself and with interest rates falling, reducing the incentive to save, maybe households will get out there and spend a little bit more.”
The world faces no end of geopolitics in the months and years ahead… a whack-a-mole in the international system of crisis after crisis
On interest rates and inflation he predicted that inflation will begin to pick up but is likely to average “just over” 2% over this year and next. He said that while the drag effect of energy costs and wage growth were increasing, food inflation was down and non-energy goods inflation stood at zero.
“And as a result of that, the HSBC official interest rate forecast suggests cuts in the Bank of England base rate every other meeting until we get to August the next year,” he said. However, he warned that the recent UK budget could add an economic stimulus, which might slow the rate of interest rate cuts. “The market has the interest rate flattening out at about 4%, which seems quite high to me for a UK neutral or equilibrium interest rate,” he said.
Earlier, HSBC’s global head of geopolitical risk Helen Belopolsky (pictured) told the audience that the world faces “no end of geopolitics in the months and years ahead… a whack-a-mole in the international system of crisis after crisis”. The uncertainty is, she said, “affecting everything from trade to foreign direct investment to business sentiment”.
Belopolsky said that efforts to resolve the conflicts in Ukraine and the Middle East will take time, and come at a cost, both in monetary terms and geopolitical uncertainty. “Preparing for this is a longer-term issue, and in addition to the wars, we have increasing geostrategic competition, which is redrawing supply chains, technology flows and reshaping dependencies, and most importantly, creating further uncertainty,” she said.
A lot of political risk consultants are talking about navigating political risk, but I would suggest it’s not about navigating, it’s not about avoiding the obstacles, it's about adapting to the new realities and seizing the opportunities
Looking ahead to the Trump presidency in the US, Belopolsky urged the audience to be prepared for immediate change: “He's already crystallised the focus in terms of the economy, foreign policy and immigration, and we have to be prepared for a day one agenda that includes swift moves towards raising tariffs, cutting taxes, and cracking down on undocumented migrants.”
On relations between China and the US, she said: “Trump intends to counter China’s influence and rebalance relations with China. We can expect higher import tariffs, export controls, investment restrictions, curbs on data exports to China, and even potential travel restrictions.” Bringing India into the picture, she added: “Barring some sort of dramatic change in events, India is likely to benefit from the close relationship that it has with the US from Modi’s relationship with Trump and the critical role that India plays in the Indo-Pacific strategy of the US and elsewhere in the region.”
Looking ahead, however, she saw positive opportunities for corporate businesses. “A lot of political risk consultants are talking about navigating political risk, but I would suggest it’s not about navigating, it’s not about avoiding the obstacles, it's about adapting to the new realities and seizing the opportunities.”
Philip Smith is editor of The Treasurer
