Economy

UK savers pulled a record amount of money out of cash Isas in the second half of last year, as low interest rates and mounting living costs dimmed the products’ appeal.Savers took out more than £7bn from cash Isas in the six months to December — the biggest half-year withdrawal since they were launched 23 years ago — according to research published this week by investment broker AJ Bell.“Poor interest rates, the cost of living crunch and the dwindling appeal of cash Isas have all played into these outflows,” said Laura Suter, head of personal finance at AJ Bell. The surge in withdrawals highlights the dilemma facing savers. As the end of the tax year looms, they must choose between holding cash, despite inflation reaching a 30-year high, or investing it in volatile markets.Sarah Coles, senior personal finance analyst at broker Hargreaves Lansdown, said the outflows could partly be explained by the way people use Isas. Typically, they open accounts in March or April, just before or after the start of the new tax year, and withdraw money from them “as they get to expensive times like holidays and Christmas”.The pandemic exacerbated the trend, she added. Millions of people amassed savings during lockdowns, but the reopening of the economy in the second half of 2021 gave them new opportunities to spend.“Wealthier households who are more comfortably off may also be using their spare cash to splurge after two years of the pandemic, booking a pricier holiday or treating their family after so long in various lockdowns,” said AJ Bell’s Suter.The appetite to save nonetheless remains strong, according to the same research, which shows savers put £35.5bn into non-Isa cash accounts over the same period. Persistently low interest rates have blighted demand for cash Isas. This is partly due to “how slow the big banks have been to pass on rate rises into their Isas” in light of spiking inflation, said Coles. Appetite for the products was also blunted by the government’s decision in 2016 to create a personal savings allowance, which meant most savers would pay no tax on interest from their non-Isa cash pots.Interest rates on cash Isas averaged 0.3 per cent at the end of last year, according to AJ Bell’s research, which analysed Bank of England data since 1999, when Isas were launched. This is less than a third of pre-pandemic rates, which averaged at 1.4 per cent in 2019.A saver putting £20,000 into a cash Isa at an interest rate of 0.3 per cent for 10 years would end up with £16,849 in today’s money, assuming an annual 2 per cent rate of inflation. If inflation were 3 per cent over the decade, the purchasing power of the savings pot would fall to £15,211. Official figures put CPI inflation in the 12 months to January at 5.5 per cent. Those with larger sums to invest are more likely to opt for a stocks and shares Isa than keep their money in cash. Last year, transfers from cash to stocks and shares Isas at Hargreaves Lansdown were up 30 per cent from the previous year. “The tipping point comes at around £30,000, when people become more likely to open a stocks and shares Isa,” said Coles.Stock investments are likely to produce a better return, said Andrew Hagger, founder of consumer website Moneycomms.co.uk, but the two Isa products were “like chalk and cheese”.While cash is “very simple with no risk”, stocks and shares Isas are “more medium to long-term products,” said Hagger. And while there are “no charges to worry about” with cash, stocks and shares products can come with fees.Investors considering stocks could also be put off by the recent volatility of the stock market, with tech sell-offs in the US and European equities swinging ahead of Russia’s invasion of Ukraine. According to finance website Moneyfacts, the average stocks and shares Isa returned 6.92 per cent between February 2021 and February 2022, while the average cash Isa returned 0.51 per cent — a record low — over the same period. Higher earners or those with more assets may be able to sit on their savings or invest, but the cost of living crunch means that those earning less are more likely to spend from their cash Isa savings. “Many households will have no spare money each month, or will be dipping into savings” as wages fail to rise by as much as living costs, said Suter. More

BEIJING (Reuters) -Shaken by a liquidity crunch among developers, China’s property market is expected to stay soft in the first half of 2022 before rebounding later in the year as policies aimed at encouraging buyers helps sentiment recover, a Reuters poll showed.Having been a pillar of strength for the world’s second largest economy, the heavily indebted property sector faltered last year as Beijing mounted a deleveraging campaign that caught out several major developers, disrupting project deliveries and chilling buyer sentiment.Aside from struggling with a rapidly cooling property sector, China has also encountered sporadic COVID-19 outbreaks that could deal a blow to factory output and consumption.Average home prices are estimated to fall 1.0% on year in the first half, according a Reuters survey of 17 analysts and economists conducted between Feb. 16-23. The estimate was unchanged from that of a Reuters poll in November.For the full year, home prices are expected to rise 2.0%.”Home prices are likely to rise if curbs are relaxed,” said Li Qilin, chief economist at Hongta Securities, adding the credit environment and regulatory policies on real estate have marginally eased since the beginning of this year.”Property transactions in first- and second-tier cities, supported by their economic and demographic advantages, will be remarkably better than third- and fourth-tier cities.”Authorities have unveiled a slew of measures to boost sales and sentiment, including giving developers easier access to escrowed pre-sale funds, requiring smaller down-payments for first-time home buyers, and allowing commercial banks to lower mortgage rates.Analysts are more upbeat on housing demand and supply than in the last Reuters survey, though they said sentiment has not fully recovered and real estate firms still face financing pressure.For demand, property sales are seen slumping 14.0% in the first half, narrowing from a 16.0% fall in November’s poll. Sales are expected to decline 7.5% for the full year.Many respondents said policies regulating demand, especially genuine demand, will be loosened, but for now sellers were relying on offering discounts.”Home buyers’ confidence has not yet been restored, and discounts are still a key marketing tool,” Huang Yu, vice president of China Index Academy, a Beijing-based property research institute.”First- and second-tier cities will see an increase in the scale of new home transactions, driving a structural rise in nationwide home prices.”China’s housing minister on Thursday pledged to keep the real estate market stable this year and ensure genuine demand for homes is met.Investment by real estate firms is expected to fall 2.0% in the first half and gain 1.5% for the whole year. Reuters previously forecast investment would drop 3.0% in the first half of 2022. Property investment grew 4.4% in 2021, the slowest pace in 17 months, while real estate firms’ sales by area rose 1.9%.”Real estate companies with capital pressure will move cautiously on land purchases and property investment,” said Lu Wenxi, chief analyst with property agency Centaline.Daniel Yao, head of research for China at JLL, a commercial property services provider, expected authorities to issue more loans to property firms for project development and allow them to issue bonds more easily to relieve the liquidity pressure and stabilise the outlook.Among the 17 respondents, 13 said China will delay rolling out a real estate tax pilot given the strain on its economy.(For other stories from the Reuters quarterly housing market polls:) More

(Reuters) – The well-scripted turn by global central banks towards tighter, post-pandemic monetary policy has been thrown into doubt by Russia’s invasion of Ukraine, a geopolitical upheaval likely to be felt differently across the world’s major economic centers.Risks policymakers face globally include a near immediate spike in the price of oil to above $100 dollars a barrel, and longer-term imponderables of what a European land war could do to confidence, investment, trade and the financial system.Central banks had been positioned for a head-on fight against inflation while expecting continued strong economic growth.But now, they may now see growth ebb even as prices continue to surge, a conundrum not easily resolved with standard monetary policy strategies.”For the major advanced economy central banks the intensification of the war now leaves them in a distinctly worse position,” Oxford Economics analysts wrote.”The high starting point for inflation…will make it hard for central banks to ignore the near-term upward forces on inflation. But at the same time, they will be aware that the latest developments increase the risks of very low inflation in late 2023 or 2024 due to a weaker growth outlook.”High inflation in the United States and elsewhere makes it unlikely the Federal Reserve, the European Central Bank, and the Bank of England will fully pause what has been a joint turn towards tighter monetary policy.Indeed less than 24 hours after Russia’s invasion began, Fed Governor Christopher Waller laid out the case for raising U.S. interest rates by a full percentage point by mid-summer.”Of course, it is possible that the state of the world will be different in the wake of the Ukraine attack, and that may mean that a more modest tightening is appropriate, but that remains to be seen,” he said.The Bank of Japan is set to keep monetary policy ultra-loose for the foreseeable future. While an expected rise in fuel would push up inflation closer to its 2% target, concern over the damage to consumption will likely exceed the need to combat inflation with tighter policy, analysts say.”Rising fuel costs would hurt the economy so tightening policy would be difficult. But the hurdle for easing policy is even higher,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “That means the BOJ will maintain the status quo for some time.”INFLATION AGGRAVATORStill, analysts said the new level of uncertainty brought on by Russia’s actions could put policymakers in a more cautious mode, likely to settle at the margins for a bit less policy tightening than a bit more.The Fed would now likely limit itself to a quarter percentage point rate increase at its March meeting, ruling out the half point hike some policymakers have favored, wrote analysts with Evercore ISI.The Bank of England might also pare its next expected increase, and the ECB delay making any firm promises about its tightening plans.The path could be more diverse for central banks in Asia.Singapore’s central bank is likely on track for a policy tightening as it assesses inflationary outcomes in the run-up to its next semi-annual meeting in April, said Selena Ling, an analyst at OCBC Bank.The war in Ukraine will have mixed implications for commodity exporter Australia, prompting its central bank to keep rates steady next week as it scrutinizes the impact of the crisis.”While commodity price impacts are likely to be positive for Australia’s terms of trade, higher petrol prices could weigh on consumer spending, as could a negative wealth shock from falling stockmarkets,” aid Felicity Emmet, a senior economist at ANZ.”We are happy keeping our pick of a September lift-off for rate hikes.”Other central banks, however, may be forced to focus more on downside risks to growth.Nomura analysts said a sustained rise in oil and food prices would hit some Asian economies by weakening their current account and fiscal balances and squeezing growth, with India, Thailand and the Philippines likely the main losers.”Central banks in developed Asia are likely to tighten policies due to the risk of second round effects amidst an already strengthening economy, while central banks in emerging Asia are likely to prioritize still-weak growth,” Nomura analysts wrote in a research note. More

TOKYO (Reuters) – Japan’s industrial output likely fell for a second month in January as the fast spread of the Omicron COVID-19 variant disrupted car production, a Reuters poll showed.While the coronavirus outbreak is on a downtrend, concerns loom for a current-quarter contraction as the Ukraine-Russia crisis fuels fresh uncertainties for the economy reliant on imported energy, raw materials and manufacturing parts.Industrial production likely declined 0.7% in January from the previous month, the median forecast in the poll of 18 economists showed, after a 1.0% fall in December.”The outbreak of COVID-19 Omicron variant since the start of the year forced output cuts to carmakers, which had already suffered from chip and parts shortage,” Shumpei Fujita, an economist at Mitsubishi UFJ (NYSE:MUFG) Research and Consulting, wrote in a note.Major automakers including Toyota Motor (NYSE:TM) Corp and Honda Motor Co Ltd have reduced production in their Japanese plants due to Omicron-related disruptions, such as infected workers and component supply bottlenecks.Japan’s new COVID-19 infections peaked in early February, but deaths are still rising.Meanwhile, retail sales were seen rising 1.4% in January from a year earlier, following a revised 1.2% growth in December, according to the poll.The Ministry of Economy, Trade and Industry will release both industrial production and retail sales data on Feb. 28 at 8:50 a.m. (Feb. 27 at 2350 GMT).Japan’s unemployment rate and jobs-to-applicants ratio likely stayed flat in January from the prior month at 2.7% and 1.16, respectively, the poll also showed. Job figures are due on Mar. 4 at 8:30 a.m. (Mar. 3 at 2330 GMT). More

The penalties will affect Russia’s biggest banks, its weapons industry, its largest energy company and families close to President Vladimir V. Putin. The country’s stock market has plummeted.WASHINGTON — President Biden, vowing to turn President Vladimir V. Putin of Russia into a “pariah,” announced tough new sanctions on Thursday aimed at cutting off Russia’s largest banks and some oligarchs from much of the global financial system and preventing the country from importing American technology critical to its defense, aerospace and maritime industries.The package unveiled by the U.S. government is expected to ripple across companies and households in Russia, where anxiety over Mr. Putin’s full-scale invasion of Ukraine has already begun setting in. The nation’s stock market fell more than 30 percent on Thursday, wiping out a huge amount of wealth.The new U.S. sanctions include harsh penalties against the two largest Russian financial institutions, which together account for more than half of the country’s banking assets.U.S. officials are also barring the export of important American technology to Russia, which could imperil industries there. In addition, the United States will limit the ability of 13 major Russian companies, including Gazprom, the state-owned energy conglomerate, to raise financing in Western capital markets. And it is penalizing families close to Mr. Putin.The sanctions against the financial giants will cause immediate disruptions to Russia’s economy but are manageable over the longer term, analysts said. The technology restrictions, on the other hand, could cripple the ability of certain Russian industries to keep up.“Putin chose this war, and now he and his country will bear the consequences,” Mr. Biden said in remarks from the East Room of the White House. “This is going to impose severe cost on the Russian economy, both immediately and over time.”It was the second round of American sanctions imposed on Russia this week, following a more modest tranche that Mr. Biden announced on Tuesday after Mr. Putin’s government recognized two Russia-backed insurgent enclaves in eastern Ukraine as independent states.It was accompanied by a blizzard of sanctions from other countries announced on Thursday. Britain adopted penalties largely in line with the American ones, with additions such as barring Aeroflot, the Russian airline, from operating in its territory. The European Union announced measures including bans on large bank deposits in the European Union and halts in many technological exports to Russia, including semiconductors. Japan and Australia also unveiled various sanctions.One question in the days and weeks ahead is whether the United States and its European allies can stay in lock step on Russia’s actions, as they claim they will. Secretary of State Antony J. Blinken spoke on both Wednesday and Thursday with the European Union’s top diplomat, Josep Borrell Fontelles, a sign of the intense efforts to coordinate a joint response.The new suite of sanctions from Washington includes some of the tougher penalties that U.S. officials had said were being considered. There had been debate about whether constricting the operations of Russia’s biggest banks and other large companies would cause too much pain to ordinary Russians and to citizens in other countries.Russia has a $1.5 trillion economy, the world’s 11th-largest. The global economy remains precarious at the start of the third year of the pandemic, and many governments are grappling with the highest inflation rates in decades. The price of crude oil has been surging this week because of Mr. Putin’s actions.“I know this is hard, and that Americans are already hurting,” Mr. Biden said on Thursday. “I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me.”But he added that Mr. Putin’s aggression could not go unanswered. “If it did, the consequences for America would be much worse,” he said. “America stands up to bullies. We stand up for freedom. This is who we are.”Residents lined up at a bus station in Kyiv, Ukraine’s capital, on Thursday.Emile Ducke for The New York TimesDaleep Singh, the deputy national security adviser for international economics, told reporters that over time, the sanctions would “translate into higher inflation, higher interest rates, lower purchasing power, lower investment, lower productive capacity, lower growth and lower living standards in Russia.”But it is unclear whether the sanctions will compel Mr. Putin to halt his offensive, in which dozens of Ukrainian soldiers and civilians have already been killed, according to Ukrainian officials. If Mr. Putin pushes forward, then the sanctions will serve as a punishment, Mr. Blinken has said.Some analysts are skeptical that the pain of the sanctions will break through to Mr. Putin, who has isolated himself during the pandemic, even from some of his close advisers.Alexander Gabuev, a scholar at the Carnegie Moscow Center, said the Russian leader and the top officials around him had adopted a bunker mentality, understanding that their lives and wealth depend on their status at home, not within Western nations. They also see themselves as being on the frontline of an ideological contest with the United States and its allies, he said.Furthermore, the Russian government adopted fiscal policies to shield the country’s economy after the United States and Europe imposed sanctions in 2014 following Mr. Putin’s first invasion of Ukraine, and some top security officials and oligarchs have profited off the changes.Edward Fishman, who oversaw sanctions policy at the State Department after Russia annexed Crimea in 2014, said he was surprised at the breadth of the new U.S. sanctions beyond the financial and technology sectors. He said the measures limiting access to capital markets for Russian state-owned enterprises in industries as varied as mining, metals, telecommunications and transportation “cut across the commanding heights of the Russian economy.”Even as Russia’s stock market plunged and the ruble fell to a record low against the dollar, the country may avoid all-out financial panic. Sergey Aleksashenko, a former first deputy chairman of the Central Bank of Russia and former chairman of Merrill Lynch Russia, said the financial measures were likely to inflict serious but ultimately bearable pain.“They will be able to manage what is related to the financial sector,” Mr. Aleksashenko said. “Maybe it will be complicated, maybe it will be expensive — but it’s doable.”More damaging, albeit over a longer term, Mr. Aleksashenko said, would be the new technology export controls.The export controls imposed by the Commerce Department are aimed at severing the supply of advanced technologies to Russia, such as semiconductors, computers, lasers and telecommunications equipment.The measures are expected to stop direct technological exports from American companies to Russia, potentially hobbling the Russian defense, aerospace and shipping industries, among others. They also go beyond previous sanctions issued by the U.S. government by placing new export limits on products that are manufactured outside the United States but use American equipment or technology.The administration said the measures, taken in concert with allies, would restrict more than $50 billion of key inputs to Russia. The country imported $247 billion of products in 2019, according to the World Bank.“This is a massive set of technology controls,” said Emily Kilcrease, a senior fellow at the Center for a New American Security.Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? More

(Reuters) – The United States on Thursday restricted exports to Russia of a broad set of U.S.-made products as well as foreign-produced goods built with U.S. technology, following the invasion of Ukraine.Here is how the rules are expected to affect U.S. tech companies, according to six experts on U.S. trade law. What technology is newly restricted from export to Russia?U.S. companies must now obtain licenses to sell computers, sensors, lasers, navigation tools, and telecommunications, aerospace and marine equipment. The United States will deny almost all requests.”We expected something sweeping, and this was certainly sweeping,” said Ama Adams, partner at law firm Ropes & Gray. The new rules also force companies making tech products overseas with U.S. tools to seek a U.S. license before shipping to Russia. A similar restriction was first applied in recent years to companies shipping to Chinese technology giant Huawei, to great effect.Which U.S. companies will be most impacted?Many companies may opt to suspend all sales to Russia out of caution, legal experts said. Dan Goren, partner at law firm Wiggin and Dana, said a client that makes electronic equipment had already held shipments to a Russian distributor on Thursday.U.S. exports to Russia were limited to about $6.4 billion last year, U.S. census data show, with machinery and vehicles among big categories in past years. The most severe tech hits to Russia could come from curbs on foreign goods.For example, the Semiconductor Industry Association (SIA), which represents U.S. chipmakers, noted that “Russia is not a significant direct consumer of semiconductors” and that Russia’s communications and tech spending “totaled only about $25 billion out of the multi-trillion global market” in 2019. But many products made in Asia and destined for Russia include chips made with U.S. tooling. Over two dozen members of the European Union, as well as the United Kingdom, Canada, Japan, Australia and New Zealand, are imposing similar export restrictions to limit Russia’s options.How will Russia be affected?Emily Kilcrease, senior fellow at the Center for a New American Security and former deputy assistant U.S. Trade Representative, said the restrictions will freeze Russia’s technology where it is today.”You won’t be able to get new tech into the country,” she said.William Reinsch, a trade expert at the Center for Strategic and International Studies and a former Commerce Department export official, expects a slow escalation of impact.”Eventually they will be hurting, but maybe not for months,” he said. “It’s not an immediate body blow.”The curbs and sanctions are not as comprehensive as U.S. trade actions on Iran and North Korea, but they could have bigger consequences globally because Russia is more intertwined with the world economy, attorneys said.What technology is not covered by new restrictions?The measures include carve-outs for consumer items such as household electronics, humanitarian goods, and technology necessary for flight safety. Cell phones are permitted as long as they are not sent to Russian government employees or certain affiliates.Also not restricted are consumer encryption technologies, which one attorney described as a sign that the United States and its allies do not want to disrupt protesters and media.Nothing precludes the U.S. from later extending sanctions to more items.South Korea was not listed among countries partnering on the rules, and its assistance would be important for blocking Russia’s access to chips from there, Kilcrease said.A senior U.S. administration official said Thursday that more countries were expected to join.The South Korean Embassy in Washington did not immediately respond to a request for comment.South Korea said on Thursday it would join in unspecified multilateral economic sanctions on Russia in response to its military operations in Ukraine, but is not considering adopting unilateral measures.Which companies could benefit from the new rules?Kilcrease and legal experts expect that Chinese technology companies may want to fill some voids created by restrictions on Western tech companies, though Kilcrease said the U.S. rules would discourage them. But the senior U.S. administration official said that China cannot supply Russian crucial military needs, especially for the most advanced chips. More

The People’s Bank of China injected a net 290 billion yuan ($45.8 billion) into the financial system via seven-day reverse repurchase agreements Friday, the most since September 2020. The operation is aimed at keeping liquidity stable at month-end, it said.“The injection is in response to tighter liquidity condition at month-end and also to send a reminder that the easing cycle is still under way,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank Ltd. “The geopolitical tensions posed mounting uncertainties and banks may have preference to keep extra liquidity.”China’s seven-day repo rate had risen to its highest in nearly a month on Thursday, signaling cash tightness in the financial system. The demand for cash typically increases toward the end of the month as corporates borrow to pay taxes and banks hoard funds for regulatory checks.The PBOC made net injections of 190 billion yuan each into the banking system in the previous two sessions to alleviate the cash crunch. It had been draining liquidity in the last two weeks, which is what it tends to do after the Lunar New Year holiday.(Updates with chart and comment in third paragraph)©2022 Bloomberg L.P. More

(Reuters) -Federal Reserve Governor Christopher Waller on Thursday laid out the case for a “concerted” effort to rein in inflation, calling for raising interest rates a full percentage point by mid-year, starting with a half-percentage-point hike in March if data in coming weeks continues to point to an “exceedingly hot” economy.”I believe appropriate interest rate policy brings the target range up to 1 to 1.25 percent early in the summer,” Waller said at the University of California, Santa Barbara, Economic Forecast Project. The Fed should also start trimming its $9 trillion balance sheet “no later than” its July meeting, he said. Once initial rate hikes are made, further increases would be in order if inflation stayed high, Waller said, or could slow or pause if inflation moderates in the second half as he expects. “Of course, it is possible that the state of the world will be different in the wake of the Ukraine attack, and that may mean that a more modest tightening is appropriate,” Waller said. But, he said, it is still far too early to read the impact of the conflict on the U.S. or world economy. And with consumer prices rising the fastest in 40 years, the Fed “must respond decisively to the data so as to maintain our credibility that we will bring down inflation.” Over the past week or so, Fed policymakers largely signaled a preference for beginning the coming round of U.S. interest rate hikes with a modest quarter-point hike, and after Russia’s invasion of Ukraine traders slashed bets on a bigger March hike.BALANCE SHEET A BIG QUESTIONBut Waller’s remarks – which echo the views of St. Louis Fed President James Bullard, his former boss – suggest Fed Chair Jerome Powell will be contending with a divided policy-setting committee when it meets on March 15-16. As Waller made what he called a “strong case” for a 50-basis-point rate hike in March against the backdrop of an economy at full employment and “alarming” inflation, interest rate futures traders boosted bets on such an increase, putting the probability at about 25%, about double what was seen earlier in the day.Two more inflation reports – one of which comes Friday – and a report on the labor market will, along with the situation in Europe, feed into the Fed’s policy decision. At issue is not just whether to “frontload” rate hikes as Waller and Bullard suggest, but also how far to raise rates and how fast to trim the Fed’s balance sheet to tighten monetary policy enough to slow demand and rein in inflation. On Thursday, Waller said the Fed should allow the balance sheet to run off much faster than in 2017 when it last let its holdings shrink, in light of the much stronger economy now and what is now a much bigger balance sheet. The Fed should not put any caps on how quickly to let mortgage-backed securities run off, he said. “With large caps and sizable amounts of securities maturing over the course of the next year or two, I do not see the need to consider asset sales anytime soon,” Waller said, though “down the road” the Fed could consider sales of MBS. As the Fed makes decisions on policy, Waller said, it must “urgently” watch the data, noting how few had foreseen how much inflation would rise in 2021, and his own surprise at how little the most recent COVID surge had slowed the economy. “I will continue to monitor the geopolitical situation to assess the appropriate timing of this near-term monetary policy tightening,” Waller said. “These actions will get us into the second half of the year, when we will have six months of inflation data, and we can assess what the appropriate path will be for the rest of 2022.” More