First interest rate rise in 10 years adds to UK mortgage burden

Bank of England’s raised cost of borrowing, from 0.25% to 0.5%, may add £22 a month to average variable interest rate loans.

Millions of homeowners face higher mortgage payments after the Bank of England said it could no longer tolerate the inflation level and announced the first increase in interest rates in more than 10 years.

Despite weak growth and mounting uncertainty over the terms of Britain’s exit from the EU, Threadneedle Street increased interest rates to 0.5% from 0.25% on Thursday, reversing emergency action taken immediately after the Brexit vote.

The move will add £22 a month to the costs of servicing the average variable rate mortgage, although the recent popularity of fixed-rate home loans means it will initially affect only 43% of home buyers.

Mark Carney, the Bank’s governor, said it was time “to ease our foot off the accelerator” but sought to reassure consumers and businesses that the first increase in rates since July 2007 was not the start of a sustained upward trend.

He said: “To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity. And the monetary policy committee continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent.”

As things stand, Threadneedle Street is expecting two further quarter-point increases in interest rates by the turn of the decade, which would leave them at 1%.

The Bank said that the financial crisis and deep recession of a decade ago had permanently damaged the economy’s growth potential. Brexit had further reduced the “speed limit” at which the UK could operate without generating higher inflation, Carney said.

Still, the rate decision sparked sharp questions over the ability of consumers to repay loans amid rising use of personal borrowing and credit cards to offset higher prices.

Households are, in total, expected to face about £1.8bn in additional interest payments on variable rate mortgages in the first year alone, according to analysis by the accountancy firm Moore Stephens. The firm also estimates that households will pay as much as £465m in additional costs on credit cards, overdrafts, personal loans and car finance.

The Bank faced criticism for the timing of its decision due to weak readings on the economy and a lack of clarity from the Brexit talks.

The TUC’s general secretary, Frances O’Grady, said: “This is the last thing hard-pressed families need. With living standards falling, the economy needs boosting not reining in.”

David Blanchflower, a former member of the MPC, criticised the rate rise and said it would be reversed. “This is guessonomics. There is nothing in the data to sustain this rise,” he said.

Despite the prospect of higher costs for borrowers, the interest rate rise will prove a boon for savers if banks match Threadneedle Street’s increase with a jump in the interest paid on deposits. Theresa May’s spokesman said the government expected to see higher rates passed on to savers.

Some banks have already said they will increase rates on their savings as well as put up the repayments demanded from borrowers, including Royal Bank of Scotland and TSB.

The move by Threadneedle Street comes amid a squeeze on households’ living standards from rising prices, outstripping the growth in earnings, following the devaluation of the pound since the EU referendum. It hopes that will offset the increase in borrowing costs.

Carney said “the worst of the real income squeeze is ending”, adding that higher interest rates were “part of ensuring that it does not come back”.

About a third of households have a mortgage on a home, according to the Bank. In aggregate, mortgage debt represents about three-quarters of the overall stock of household debt. Fixed-rate mortgages by value have also risen significantly in recent years, to about 60% of the stock of mortgages, which the central bank said meant that the impact of the rate hike would only feed through to households gradually.

Vince Cable, the Liberal Democrat leader, said higher rates presented “a serious problem as many individuals, families and companies rely increasingly on borrowing to get by”.

There have been some signs of consumers using savings or borrowing money from banks or on credit cards to keep up with day-to-day spending in recent months. However, high-street sales are falling at their fastest rate since the height of the recession as consumers tighten their belts. Pushing up the cost of servicing debts, “will kick one of the few parts of the economy that was working”, Cable added.

Bird & Bird secures co-operation agreement with Chinese firm

Bird & Bird has entered into a co-operation agreement with Chinese firm AllBright Law Offices, its fifth deal with a local firm in Asia Pacific.

The agreement, effective today, (2 November) is non-exclusive.

It will see AllBright launch an international representative office out of Bird & Bird’s City base at 12 New Fetter Lane. The office is expected to launch in March.

AllBright posted revenue of $272.5m (£205.7m) in 2016, placing the firm in fifth place in The American Lawyer’s China top 40. Its firmwide lawyer count that year was 1,661.

Bird & Bird managing partner David Kerr (pictured) said: “For us a co-operation agreement is a much more involved process about helping each other to look after clients in the best way, that uses innovative techniques and legal knowledge exchange. It’s not just a traditional referral scheme.”

AllBright senior partner Guo Zhongqing said: “AllBright has been more cautious in globalization compared to some of our competitors. We are responding to the urgent demand from our clients, who need a network of foreign lawyers in different jurisdictions. Bird & Bird’s network of offices in 19 countries will be an extension of our legal services to our clients when they invest and operate overseas.”

Speaking about AllBright’s planned London opening, AllBright corporate partner Jeffrey Khan said: “Our initial perspective on our London office is to enable us to have a capacity to offer our clients global legal services. It will be initially focused on co-operation between management at the firms.”

Bird & Bird already has a significant presence on the ground in the Asia Pacific region with three offices in Beijing, Shanghai and Hong Kong, in addition to bases in Japan, Singapore – where it has an association forming Bird & Bird ATMD – and Sydney.

The firm also has co-operation agreements with domestic firms in South Korea, Indonesia and Malaysia and a formal association with Chinese firm Lawjay Partners, through which it offers PRC law.

This move in China follows the announcement of an office launch in the US. The firm is set to open a base in San Francisco next year, which will be its first office in the US.

Bird & Bird currently has 28 offices across Europe, Asia and the Middle East.

Social media firms under scrutiny for ‘Russian meddling’

Facebook, Twitter and Google lawyers defended themselves to US lawmakers probing whether Russia used social media to influence the 2016 election.

The three firms faced hard questions at a Senate panel on crime and terrorism about why they missed political ads bought with Russian money.

Lawmakers are eyeing new regulations for social media firms in the wake of Russia’s alleged meddling in 2016.

The firms said they would tighten advertising policies and guidelines.

Senator Al Franken, a Democrat from Minnesota, asked Facebook – which absorbed much of the heat from lawmakers – why payment in Russian rubles did not tip off the firm to suspicious activity.

“In hindsight, we should have had a broader lens,” said Colin Stretch, general counsel for Facebook. “There are signals we missed.”

A day earlier Facebook said as many as 126m US users may have seen Russia-backed content over the last two years.

Lawyers for the three firms are facing two days of congressional hearings as lawmakers consider legislation that would extend regulations for television, radio and satellite to also cover social media platforms.

The firms said they are increasing efforts to identify bots and spam, as well as make political advertising more transparent.

Facebook, for example, said it expects to have 20,000 people working on “safety and security” by the end of 2018 – double the current number.

“I do appreciate these efforts, but I don’t think it’s enough,” said Senator Amy Klobuchar, a Democrat from Minnesota.

Ms Klobuchar has proposed legislation that she says would make social media firms subject to the same disclosure rules for political and issue pages as print, radio and television companies.

The companies said they would work with her on the bill, but did not say they would support it.

Senators questioned whether the firms are up to the task of weighing free speech and privacy rights against concerns over terrorism and state-sponsored propaganda.

“I think you do enormous good, but your power sometimes scares me,” said Senator John Kennedy, a Republican from Louisiana.

What happened during the election?

Russia has repeatedly denied allegations that it attempted to influence the last US presidential election, in which Donald Trump beat Hillary Clinton.

But Facebook revealed as many as 126m American users may have seen content uploaded by Russia-based operatives.

The social media company said about 80,000 posts published between June 2015 and August 2017 and were seen by about 29m Americans directly.

These posts, which Facebook says were created by a Kremlin-linked company, were amplified through likes, shares and comments, and spread to tens of millions of people.

That company, Internet Research Agency, was also linked to about 2750 Twitter accounts, which have been suspended, Twitter said.

The firm also said it had identified more than 36,000 Russian bots that generated 1.4m automated, election-related Tweets, which may have been viewed as many as 288m times.

Google also revealed on Monday that Russian trolls had uploaded more than 1,000 political videos on YouTube on 18 different channels. The company said they had very low view counts and there was no evidence they had been targeting American viewers.

Most of the posts focused on sowing political and social divisions, the firms have said.

The companies said they used a combination of staff and big data to police that content, disabling fake and spam accounts.

Key recent developments:

Nov 2016: Facebook founder Mark Zuckerberg says “the idea that fake news on Facebook influenced the (US) election in any way is a pretty crazy idea”
Aug 2017: Facebook says it will fight fake news by sending more suspected hoax stories to fact-checkers and publishing their findings online
Oct 2017: Google finds evidence that Russian agents spent tens of thousands of dollars on ads in a bid to sway the election, reports say
Oct 2017: Twitter bans Russia’s RT and Sputnik media outlets from buying advertising amid fears they attempted to interfere in the election

David Miliband: UK has been left embarrassed on world stage over Brexit

Britain has been left embarrassed on the world stage and there is international “bafflement” over Brexit, former foreign secretary David Miliband said.

The UK was viewed from abroad as being at a “low ebb” and “in retreat”, the former Labour cabinet minister said.

Mr. Miliband, chief executive of the International Rescue Committee aid organisation based in New York, said Labour should press for the option of continued membership of the EU to remain on the table when Parliament votes on the Brexit deal.

And he criticised Theresa May’s approach to triggering Article 50, starting the two-year countdown to Brexit, without knowing the outcome.

In an interview in the December issue of British GQ, on sale on Thursday, Mr. Miliband said: “I take no pleasure in Britain’s embarrassment.

“Those of us who are outside the country take absolutely no pleasure in the low ebb to which Britain has sunk.

“Brits abroad look at the fact other countries see us in retreat, having lost our way.”

The former foreign secretary said: “I was in office when Article 50 came into the Lisbon Treaty and no-one in their right mind thought a country would be crazy enough to pull the pin on the grenade unless they were absolutely sure about how the two-year ticking time bomb was going to go.

“You’ve got to be deeply worried about the prospects, for the country, of the negotiation, because we stand to lose much more than Europe does.”

He said Labour should argue that Parliament – or even the people, in a second referendum – should be given the choice between the Brexit deal negotiated by Mrs. May’s Government and continued membership of the EU.

Ministers have said they intend to give Parliament a vote – but that would decide between accepting the terms on offer or leaving the EU without a deal.

Mr. Miliband said: “Labour should argue that the British parliament or people must be given a choice between the Brexit deal negotiated and membership of the EU.

“There is no progressive vision for Britain cut off from the continent.”

India’s $100bn road building gamble to boost economy

The Indian government is planning to kickstart economic growth by building a huge road network. The idea sounds bulletproof – but is it? Economic analyst Vivek Kaul examines the idea.

When in trouble, some politicians and countries return to the influential British economist John Maynard Keynes.

Keynes believed that governments must be ready to borrow more and invest in public works in order to restart growth.

India’s economy grew at its slowest pace for three years in the last quarter. Growth has declined for six quarters in a row.

On Tuesday, the government took a leaf out of Keynes’s book and announced a $107bn (£80bn) programme to build tens of thousands of kilometres of road, connecting the north-western state of Rajasthan to the north-eastern state of Arunachal Pradesh.

In total, it’s planning to build precisely 83,677km (51,994 miles) of roads over the next five years.

The majority of the money will be spent in a 34,800km highway-building programme which, according to economist Mihir Swarup Sharma, is “basically a reworked and updated form” of a two-decade-long government programme.

This is not surprising because Narendra Modi’s government has shown a tendency to portray old schemes as new ones.

Let’s leave that aside and concentrate on how this programme will be implemented.

The government said that substantial delegation of powers has been provided to the National Highways Authority of India and other authorities and government departments.

India has one of the largest road networks in the world, already standing at more than 5.4 million km (3.3 million miles) comprising national highways, state highways, and district, rural and village roads. National highways account for less than 2% of the network.

The project should help a significant portion of the one million Indians entering the workforce every month find jobs. According to the government, it is expected to create more than 140 million working days.

A large portion of India’s workforce is either unskilled or semi-skilled; road-building projects cater to them.

The government plans to raise money for the roads through debt from the financial market, private investments through the public-private partnerships, highway toll collections and a federal road fund, among other things.

Spurring growth

On paper it sounds like a fool-proof idea.

The government will build roads. It will employ many people in the process and pay them. This income when spent will spur businesses as well as the economy.

If only things were as simple as that.

To build 83,677 km of roads over five years, the project would need to keep up a pace: It would need to build on average 16,735.4 km of roads a year.

Is that possible?

According to the government’s own data, 4,410km of roads were built in India during 2014-15. That was followed by 6,061km in 2015-16 and 4,699km up to December 2016 for the 2016-2017 financial year.

Clearly, the government must tremendously increase the speed of building roads – a tall order.

Over and above this, acquiring land to build roads will not be easy, as many are opposed to new land acquisition rules.

Nitin Gadkari, the federal roads and highways minister, has said landowners are “making a beeline to offer their land for the highway projects after enhanced compensation”.

But it is not going to be anywhere as easy as the minister made it sound.

Take the case of the an industrial corridor linking the cities of Delhi and Mumbai. It was announced nearly a decade ago but most of the corridor is still plagued by the issue that the authorities are unable to acquire the land.

Building roads to drive economic growth is an old idea. In fact, it was put in action even before Keynes wrote about it – in Hitler-era Germany, in Italy and in Japan.

How well will things work out in the Indian context? That will depend on how well the government is able to execute the building of roads.

The good news is that Nitin Gadkari, one of the better performing ministers in Mr Modi’s government, is in charge.

The bad news is that good execution is not something India is known for.

RBS reports strong earnings putting it on track for first annual profit since 2007

Royal Bank of Scotland beat analyst forecasts by posting £871m in operating profit for the third quarter of its financial year, helped by cost-cutting measures and not having to pay any additional conduct charges.

The bank, which is still state-owned after having been bailed out for £45.5bn during the 2008 financial crisis, has now recorded a profit for each quarter of 2017, putting it on track to record its first annual profit since 2007.

On Friday it said that its common equity Tier 1 ratio, an important measure of a bank’s financial resilience, had also risen by more than expected during the three month period – to 15.5 per cent. At the end of June, the ratio had stood at 14.8 per cent, up from 13.4 per cent in December last year.

“Our core bank continues to generate strong profits and we remain on track to hit our financial targets,” chief executive Ross McEwan said.

Separately on Friday, RBS also said that it had agreed to pay $35m and enter into a non-prosecution agreement with the US Department of Justice to settle a probe of traders accused of defrauding customers on bond prices.

On Friday RBS said that the settlement had been announced on Thursday by an Attorney for the District of Connecticut.