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BoE split but UK interest rates maintained at 5.25% - Industry roundup: 2 February

BoE split three ways, UK interest rates maintained at 5.25%

In its February meeting, the Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep the bank rate at 5.25%. Of the dissenting voices, two preferred to increase the bank rate by 25 basis points, while another voted to cut the rate by 25 basis points. This is the first time since 2008 that the MPC interest rate vote has been split between hike, pause, and cut.

A statement from the BoE announcing the decision noted that headline CPI inflation has fallen back relatively sharply. The restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market. In the MPC’s February forecast, the risks to inflation are more balanced. Although services price inflation and wage growth have fallen somewhat more than expected, critical indicators of inflation persistence remain elevated.

As a result, monetary policy will need to remain restrictive for a sufficiently long time to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period until the risk of inflation becoming embedded above the 2% target dissipates.

The MPC says it remains prepared to adjust monetary policy as warranted by economic data to sustainably return inflation to the 2% target. It will, therefore, continue to closely monitor indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth, and services price inflation. On that basis, the Committee will keep under review for how long the bank rate should be maintained at its current level.

Commenting on the decision, Douglas Grant, Group CEO of Manx Financial Group, said: “Today's decision to maintain the current interest rates brings hope to both businesses and consumers. Small and medium-sized enterprises (SMEs) should take this opportunity to reevaluate their current lending arrangements and strengthen their positions amidst and in preparation for political and economic uncertainties.”

From an investment perspective, John Glencross, CEO and Co-Founder of Calculus, said: “Investors should be prepared for a prolonged period of elevated interest rates and as such, we are seeing a change in attitude. Investors understand an overallotment of cash could be a short-term view.”

Shane O’Neill, Head of Interest Rates at Validus Risk Management, drew attention to the comment from BoE governor Andrew Bailey that the MPC needs to see more evidence that inflation is set to fall all the way to 2% before they can consider cutting interest rates. “This rhetoric supports our view that the market is currently overzealous in their pricing of rate cuts – before the meeting markets were pricing 115bps of cuts for this year and this has been marginally adjusted lower to 110bps following the release, and we believe this has further to go,” O’Neill commented.


Hong Kong corporates concerned about US-China relations

One year after Hong Kong reopened post-Covid, corporates in Hong Kong continue to worry about US-China relations and overseas perception of Hong Kong. These two, plus the new concern this year about the slow Chinese economy, were the top three looming issues impacting business in 2024, according to the 2024 Members Business Sentiment Survey Findings Report published by the American Chamber of Commerce in Hong Kong (AmCham).  

Because of that and a slower Hong Kong economic recovery, 26% of respondents reported they were pessimistic about the business outlook for the next 12 months. Some 60% of companies surveyed were adopting a “staying put” approach in their investment and hiring plans in 2024.

However, members were adjusting to the new environment and business performances were steady, with 96% assessing the business in the past 12 months to be fair to excellent. In fact, 81% recorded the same or increased revenue in 2023 compared to 2022. Around three-quarters (76%) of respondents regarded Hong Kong as a competitive international business hub in Asia – owing to the city’s global connectivity, free flow of capital and its low and simple tax system, legal and regulatory system, and 78% had no plans to move their regional headquarters away from Hong Kong in the next three years. 

Locally, companies reported that foreign businesses were still largely welcomed in Hong Kong. A majority (68%) viewed the Hong Kong government as effective in responding to business concerns and opportunities, and 89% viewed it as supportive of innovation and technology development. Members also expressed confidence in Hong Kong’s rule of law (79%) and data freedom (82%), and fewer companies (31% in 2024 vs 38% in 2023) had been negatively impacted by the National Security Law. Of the 31%, 65% said the effects were indirect and 35% stated they were direct. Nevertheless, the high costs of living and doing business and the availability of talent made Hong Kong less competitive than its regional peers.

Despite the government’s commitment to supporting financial services, there was a mixed picture of Hong Kong’s regional competitiveness in the industry due to the slowdown of capital market activities in Hong Kong, geopolitical tensions between the US and China, and a limited regulatory governance framework on virtual assets.


UK businesses save 150 hours every year with open banking

Two in three (66%) larger UK businesses say they are very familiar with open banking, and users report an average annual saving of 150 hours usually spent on operational tasks such as processing invoices and financial data, recurring payments and processing refunds, new research reveals. Payit by NatWest surveyed 150 business leaders across UK organisations with an annual revenue of £2m or more. The results show how open banking is helping to tackle payment processing costs, reducing operational time spent on finance tasks, and can help improve customer experience.

Business leaders using open banking amongst their payment systems reported spending a monthly average of 44.5 hours on finance tasks compared to just over 57 hours spent by those who don’t use open banking. Across the year, this accumulates to more than 150 hours, or over four working weeks. It appears that with a reduction in time spent on tasks come financial rewards. Businesses without open banking typically spend £1,687 more on payment processes annually, and £1,117 more on card processing fees than those with the technology in place: an 8% difference in spend annually.

Respondents said that having access to the real-time data provided by open banking would help develop customer experience (39%), improve payment efficiencies and reduce operational costs (37%). The report also identified barriers preventing businesses from implementing open banking, with almost half (48%) concerned about cybersecurity risks. This is despite Open Banking’s security profile being based on Finance Grade API specifications, similar to bank-level security, and being regulated by the FCA or a National Competent Authority.


Conferma Pay and ConnexPay partner on virtual card solution

Conferma Pay has partnered with ConnexPay to allow businesses to simplify their payment processes by issuing virtual cards for improved cash flow management. The partnership brings together Conferma Pay’s virtual card ecosystem and ConnexPay’s virtual card issuing engine and real-time funding processes.

The solution is aimed at businesses with a high traffic of both incoming and outgoing payments, which are being held back by cash flow issues. ConnexPay’s platform allows businesses to gain immediate access to incoming customer payments, which they can use in real time to fund ConnexPay virtual cards through the Conferma Pay platform to pay suppliers. This should eliminate the waiting for settlement and funds to clear, as well as pre-funding requirements.

ConnexPay’s Intelligent Purchases Routing technology automatically issues the type of card that will provide the maximum rebate, meaning businesses increase revenue share on every payment, which could help improve both cash flow and growth. The integrated fraud prevention and analytics suite also means users can have greater control and overview of their live finances.


Eurozone non-cash payment volumes up over 10% in 1H23

In the first half of 2023, the total number of non-cash payment transactions in the euro area increased by 10.1% to 67.0 billion compared with the first half of 2022, according to data released by the ECB. The corresponding total value declined by 4.5% to €111.4 trillion. 

The number of card-based payments within the euro area increased by 15.6% to 36.5 billion compared with the first half of 2022. The corresponding total value of card-based payments rose by 14.1% to €1.5 trillion, reflecting an average value of around €40 per transaction. The split between remote and non-remote transactions in the total number of card payments was 17% to 83%, while the split in terms of value was 26% to 74%. The number of contactless card payments initiated at a physical electronic funds transfer point of sale terminal increased by 24.3% to 20.9 billion compared with the first half of 2022, with the corresponding total value rising by 25.9% to €0.5 trillion. As a result, their share in the total number of non-remote card payments accounted for 69%, while the corresponding share in terms of value reached 50%. At the national level, Lithuania had the largest share of card payments as a percentage of the total number of non-cash payments in the first half of 2023, at around 78%.

During that time, credit transfers within the euro area increased by 10.0% to 14.6 billion compared with the first half of 2022, while the corresponding total value declined by 5.8% to €103.6 trillion. As higher-value payments are usually made by credit transfer, credit transfers made up 93% of the total value of non-cash payments. The ratio of transactions initiated electronically to paper-based transactions was around 14 to 1, while in terms of value, the ratio was around 12 to 1. At the national level, Latvia had the largest share of credit transfers as a percentage of the total number of non-cash payments in the first half of 2023, at around 36%.

In the first half of 2023, the number of direct debits within the euro area declined by 3.1% to 10.4 billion compared with the first half of 2022, and the corresponding total value rose by 27.1% to €4.8 trillion. Of the total number of direct debits, those with an electronic mandate accounted for 11%, whereas those with consent given in other forms accounted for 89%, while in terms of value, the split was 14% to 86%. At the national level, Germany continued to have the largest share of direct debits as a percentage of the total number of non-cash payments in the first half of 2023, at around 34%.

The number of e-money payment transactions within the euro area increased by 6.9% to 4.4 billion compared with the first half of 2022, and the corresponding value rose by 7.0% to €0.2bn. Of the total number of e-money payment transactions, those made with cards on which e-money can be stored accounted for 9% whereas those made with e-money accounts accounted for 91%, while in terms of value the split was 11% to 89%.


Asian investors flock to fixed income 

Investors across Asia moved quickly to lock in attractive yields offered by fixed income funds in 2023, while also maintaining more resilient equity fund exposure than their peers worldwide according to the latest Global Fund Flow Data release from Calastone. Asian investors ploughed a net US$9.4bn into fixed income strategies from January to December. This is in stark contrast to the US$7.3bn in net outflows recorded the year prior and the most significant reversal in investor sentiment toward this asset class seen in any region.

However, the robust cumulative rise seen over the last 12 months has not been uniform. After a solid start to the year, investment inflow momentum weakened into the third quarter of 2023. Much of the loss of enthusiasm could be explained by stronger than anticipated global economy and sticky inflationary pressures, prompting market participants to weigh the growing likelihood of further rate hikes.

Coming into the end of the year, however, the prospect of both capital gains and a desire to lock-in attractive yields ahead of monetary policy normalisation saw buying activity resume. Investors in Hong Kong almost reversed all outflows they made in 2022 by the end of the year, while those in Singapore and Taiwan invested more money than they had withdrawn.

At a global level, equity funds saw US$7.1bn in net outflows over the year, a solid improvement from the US$13.3bn withdrawn in 2022. Investors added equity exposure cautiously between January and April as markets rallied amid optimism around artificial intelligence before succumbing to become net sellers for the rest of the year aside from a short burst of enthusiasm in November.

Looking closer at the data, unlike investors in Europe and the UK, which recorded clearly negative outflows, equity allocations in Asia saw a modest gain last year. Equity funds took in US$1.1bn in net inflows from Asian investors in 2023, largely thanks to investors based in Hong Kong. Despite net outflows in Singapore (US$376) and Taiwan (US$806), Hong Kong investors almost single-handedly offset any pessimism held by their regional peers. After a weak start to the year that reflected a stuttering reopening of the Chinese economy, Hong Kong added US$1.6bn to equity funds.


Adyen and BILL to provide card issuing capabilities

Adyen has announced it is partnering with BILL to deliver advanced acquiring and issuing experiences for BILL’s accounts payable (AP) and accounts receivable (AR) solutions. The partnership started with Adyen for Platforms’ card acquiring and has also grown to include card issuing capabilities, marking a natural progression across Adyen’s platform offering. 

Adyen’s card issuing services have been incorporated into BILL’s virtual card offering as part of BILL Accounts Payable and Accounts Receivable solutions, enhancing BILL’s suite of financial products and services. Adyen provides BILL with technology to drive further innovation and opportunities to help SMBs thrive through seamless payment experiences. 

“Helping our SMB customers manage their cash flow means making their payments easy and secure,” said Loren Padelford, BILL Chief Commercial Officer. “Because of their trust in BILL, our customers can easily make their payments and get back to running their business.”

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