BlackRock, world’s biggest asset manager, says that the world has entered a new age of low growth rates and high interest rate.
The report warned that will be more volatile in coming years, and that economies cannot grow as fast as they did in the past.
Alex Brazier is the deputy head of BlackRock Investment Institute, and former Bank of England official. He said that the current climate is experiencing subdued economic growth and higher interest rates compared to before the pandemic.
He said they won’t return to the past.
BlackRock, that manages assets valued at $9.4 trillion ($7.5 trillion), stated that the markets are still adjusting to these new realities. Investors had to be more precise and selective to achieve returns compared to the 15 years with low inflation.
According to the asset manager, several big changes such as the ageing of the population, increased climate investment, and the AI race, will increase inflation and make it volatile.
BlackRock predicts that central banks face limitations due to the increased government spending and debt levels resulting from the pandemic.
It said: “We are seeing central banks coping with high inflation in the face of heavy government spending and debt.”
Mr Brazier warned of a weakening in the British economy’s ability to provide goods and services, while geopolitical tensions are likely to lead more inflation shocks.
He stated that, in the last 20 years, central banks attempted to consistently increase inflation. However, they encountered a problem as inflation was only decreasing.We will need to adjust to higher interest rates in the long term.
The British Chamber of Commerce has warned that the UK’s investment will be hit by a slump in next year due to a record-high minimum wage.
The BCC has lowered its prediction for UK business investment due to increased costs, high interest rates, and difficulties in trade.
It had predicted a 0.1pc decline in 2024 over the summer. It now expects that business investment will decrease by 0.8pc.
This is a dramatic contrast to the growth of 5.6pc recorded between 2023 and now.
Vicky Pryce is the chairman of BCC’s Economic Advisory Council. Increasing the minimum wage next year will worry businesses more about investment as costs keep going up.
Jeremy Hunt announced a record-breaking increase in the National Living Wage last month. This is worth over £1,800 annually for a worker who works full time. He also increased the minimum wage for those aged 18-20. This will result in an increase of 2.7m workers’ costs from April 2024.
The EU has also imposed red tape on businesses. The BCC stated that exports will only rise by 0.5pc in 2019, following a 0.5pc decline over 2023.
The BCC expects that the UK economy will expand by 0.4pc in 2019. The BCC has raised its growth forecast from 0.3pc to 0.4%, but downgraded the forecast for 2025.