After US status quo, UK actions first rate cut

The Bank of England’s Monetary Policy Committee (MPC) announced on Thursday, 1 August, that it had voted to cut interest rates by 25 basis points, taking the bank rate down to 5%. It was the first time the MPC had cut rates since March 2020, following a hiking cycle from December 2021, which led the bank rate hit its highest level in 16 years in August 2023. The announcement in the UK came a day after the Federal Open Markets Committee decided against a US rate cut and instead maintained the target range for the federal funds rate at 5.25-5.5%.

In the UK, the MPC vote was on a knife edge, with a majority of 5-4 in favour of reducing the bank rate by 0.25 percentage points to 5%. Four members preferred to maintain the bank rate at 5.25%. The five members who voted to cut noted it was appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks had waned, and some progress had been made in moderating the risks of inflation persistence. There had been a normalisation in inflation expectations, and forward-looking indicators such as the Decision Maker Panel survey pointed to waning wage and price pressures. The recent strength in services inflation had, in part, continued to reflect more volatile components of this series. Although GDP had been stronger than expected, the restrictive stance of monetary policy continued to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures. For some of these members, the decision was finely balanced. Inflationary persistence had not yet conclusively dissipated, and there remained some upside risks to the outlook.

For the four members that preferred to maintain the bank rate at 5.25% at this meeting, the upside news to services inflation and GDP outturns relative to the May Report, along with continued elevated wage growth, suggested that second-round effects were having a more significant impact on wage and price-setting behaviour in the economy beyond what was embodied in the modal forecast. External factors, such as international food and energy prices, had played the major role in reducing headline inflation to date. By contrast, underlying domestic inflationary pressures appeared more entrenched. These members thought there was a greater risk of more enduring structural shifts, such as a rise in the medium-term equilibrium rate of employment, a fall in potential growth and a rise in the long-run neutral interest rate, contributing to domestic inflationary persistence. They preferred to maintain the current level of Bank Rate until there was more substantial evidence that these upside pressures would not materialise.

The MPC also published an updated set of projections for activity and inflation in the accompanying August Monetary Policy Report. Twelve-month CPI inflation was at the MPC’s 2% target in May and June. CPI inflation is expected to increase to around 2¾% in the second half of this year, as declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. Private sector regular average weekly earnings growth has fallen to 5.6% in the three months to May, and services consumer price inflation has declined to 5.7% in June. GDP has picked up sharply so far this year, but underlying momentum appears weaker.

Commenting on the rate cut, Douglas Grant, Group CEO of Manx Financial Group, said:  “The BoE’s decision today to cut interest rates will no doubt be welcome news to businesses and consumers alike. It will offer a much-needed lifeline to UK SMEs struggling with the persistent dual pressures of high inflation and elevated borrowing costs, alleviating financial strain and freeing up cash flow for investment, recruitment, and growth. We would hope the news will help stimulate economic activity and boost consumer confidence.”

 

Tradeweb completes acquisition of ICD

Tradeweb Markets Inc., a global operator of electronic marketplaces for rates, credit, equities and money markets, has announced it has completed its acquisition of Institutional Cash Distributors (ICD), an investment technology provider for corporate treasury organisations trading short-term investments. The US$785m, all-cash transaction was announced in April 2024, when CTMfile spoke with ICD CEO Tory Hazard about the deal's implications.

With the acquisition of ICD, Tradeweb adds corporate treasury professionals as a fourth client channel, complementing its existing focus on institutional, wholesale and retail clients and giving it access to an addressable market worth over US$2 billion. Tradeweb expects the ICD acquisition to be accretive to its adjusted earnings per share over the next 12 months.

In the future, treasurers using ICD will be able to optimise yield and duration via Tradeweb’s existing suite of products and partnerships, as well as manage liquidity needs and related FX risk. In addition to cross-selling its products to ICD’s clients, Tradeweb will leverage its international presence to accelerate ICD’s growth and expansion.

“Corporate treasurers represent an increasingly large and underserved opportunity within fixed income markets, and ICD’s differentiated technology offers the perfect gateway between corporates and global fixed income markets,” said Billy Hult, CEO, Tradeweb.

 

China leads world in GenAI usage while US ahead in full implementation

China is in the lead when it comes to using generative artificial intelligence (GenAI), according to a recent global study SAS, commissioned with Coleman Parkes Research. China business decision makers report that 83% of their organisations use the technology. That’s more than in the UK (70%), the US (65%) and Australia (63%). However, organisations in the US are ahead in maturity and have fully implemented GenAI technologies at 24% compared to China’s 19% and the UK’s 11%.

In terms of the global economic impact of AI and GenAI, a 2023 report from McKinsey estimated GenAI could add the equivalent of US$2.6 trillion to US$4.4 trillion annually across various use cases. That’s comparable to the entire GDP of the UK in 2021. This impact would increase the overall influence of artificial intelligence by 15% to 40%.

The global study from SAS and Coleman Parkes Research shows that number one on the list of challenges organisations face in putting GenAI to routine use is the lack of a clear GenAI strategy. Only 9% of leaders responding to the survey indicate they are extremely familiar with their organisation’s adoption of GenAI. Of respondents whose organisations have fully implemented GenAI, only 25% say they are extremely familiar with their organisation’s GenAI adoption strategy. Even those decision makers responsible for technology investment decisions aren’t familiar with AI – including those at organisations that are ahead of the adoption curve.

Nine out of 10 senior technology decision makers overall admit they don’t fully understand GenAI and its potential to affect business processes. At 45%, CIOs lead the way with executives who understand their organisation’s AI adoption strategy. However, only 36% of chief technology officers (CTOs) say they’re fully in the know. Yet despite this understanding gap, most organisations (75%) say they have set aside budgets to invest in GenAI in the next financial year.

Data presents a further challenge. As organisations adopt GenAI, they realise they have insufficient data to fine-tune large language models (LLMs). They also realise - once they’re deep into deployment - they lack the appropriate tools to successfully implement AI. Organisations’ IT leaders are mostly concerned about data privacy (76%) and data security (75%).

Additionally, only a tenth of organisations say they are fully prepared to comply with coming AI regulations. One-third of organisations that have fully implemented believe they can comply with regulations. Only 7% are providing a high level of training on GenAI governance. And only 5% have a reliable system in place to measure bias and privacy risks in LLMs.

Although there are obstacles, some early adopters have experienced meaningful benefits already: 89% report improved employee experience and satisfaction; 82% say they’re saving operational costs; and 82% state customer retention is higher.

 

EIB and Deutsche Bank look to boost Europe’s wind manufacturers

The European Investment Bank (EIB) is activating a €5bn initiative to support manufacturers of wind-energy equipment in Europe by extending a €500m counter-guarantee to Germany-based Deutsche Bank AG. The transaction will enable Deutsche Bank to set up a portfolio of up to €1bn of banking guarantees for new investment in wind farms in the EU. 

The deal represents the first operation under the December 2023 EIB plan to provide €5bn to strengthen the provision of commercial bank guarantees for companies throughout the European wind industry. The initiative is part of an EU Wind Power Package presented by the European Commission in October 2023 to maintain a healthy and competitive wind energy supply chain across the Union. It foresees counter-guarantees to the sector’s primary lenders, which include Deutsche Bank.

The EIB’s counter-guarantees under its €5bn initiative are designed to share credit risks faced by commercial banks when dealing with players in the wind industry. The instrument facilitates access to advance payment and performance guarantee lines, benefitting the banks and the industry.

In this initial project, Deutsche Bank will use the EIB’s backing to provide banking guarantees to wind-energy manufacturers. This will enable the manufacturers to receive advance payments and provide performance guarantees when taking on new wind projects. The guarantee scheme also allows manufacturers to pay their suppliers in advance for the supply of wind farms and the related wind value chain components, which include turbines, grid connection infrastructure, cables and transformer stations. The EIB-Deutsche Bank €1bn guarantee facility is estimated to initiate private investments of up to €8bn.

 

Visa aims to maximise benefits of contactless payments for Vietnamese SMBs

Visa is introducing resources to help merchants in Vietnam, especially small and medium-sized businesses (SMBs), accept and take full advantage of digital payment solutions. In a statement, Visa said this is part of its commitment to empower Vietnamese SMBs and boost the national economy by accelerating their contactless payment acceptance.

The toolkit provides step-by-step instructions and addresses common questions from merchants in Vietnamese and English so that they can successfully initiate and process contactless transactions. The toolkit also showcases the universal Contactless Indicator featured on contactless Visa cards and the Contactless Symbol on all contactless readers. Customers can tap their card or any contactless-enabled device (such as a mobile phone, tag, or smartwatch) on a contactless terminal to make payments.

The Visa Consumer Payment Attitudes study found that the cashless wave in Vietnam maintained its progressive pace, with most surveyed consumers (88%) attempting to go cashless. Vietnamese consumers also showed an emerging preference for contactless payments on physical cards and mobile digital payments. Globally, Visa’s tap to pay penetration reached 65%, which has doubled since 2019. In Vietnam, over 70% of face-to-face transactions made on Visa cards are contactless. This reaffirms consumers’ rising confidence in contactless payments and the growing expectation for SMBs to meet this demand.

 

BofA finds new head of APAC global payments solutions

Bank of America (BofA) have appointed Winnie Chen as head of Asia Pacific Global Payments Solutions (GPS), reporting to Mark Monaco, head of Global Payments Solutions, and Jin Su, president of Asia Pacific. Chen will begin her role in September and be based in Singapore.

As head of Asia Pacific GPS, Chen will drive the Global Payments strategy and execution for the region, look to deepen the bank's client relationships and ensure it works closely with partners in Global Corporate and Investment Banking.

This appointment sees Chen rejoin BofA, where she was previously head of Sales for Financial Institutions and the Public Sector for Hong Kong and Macau. Most recently, she was head of Treasury Services for Asia Pacific and Singapore Chief Executive at Bank of New York Mellon.

Chen has more than 20 years of experience in financial services, having held various roles in the US, Greater China, and Singapore. She brings an international perspective and deep knowledge of credit administration, sales, relationship management, and transaction banking.