Bank of England's Bailey opposes cornerstone of Rachel Reeve's pension plans
Speaking at the Bank of England's latest Financial Stability Report (FSR) presentation, Andrew Bailey stated that while he acknowledges the long-standing issue of low pension fund investment in the UK economy, he does not support a regulatory mandate to force pension funds to allocate funds to UK companies.
'We've had a low level of pension fund investment in the economy and I think structural changes to the pension industry are helpful in this effect. However, I do not support mandating, I don't think that's appropriate," he said.
He added that the current government is taking the same approach as its predecessor on this issue, saying: 'I think reforming the pensions industry does require a lot of heavy lifting but it needs to be done,' he said, but stressed that he hopes changes will be 'natural".
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Earlier this year, chancellor Rachel Reeves had suggested the introduction of a 'backstop' power that would compel pension funds to invest in British assets if necessary. Her proposals gained some traction, with 17 pension funds agreeing under the Mansion House Accord to allocate at least 5% of their assets to the UK by 2030. This commitment includes giving the government the power to enforce domestic investment in the event that voluntary contributions fall short.
Reeves is expected to deliver a speech on pensions and investment reforms at the upcoming Mansion House event next week, with anticipation that a detailed strategy paper will outline further steps in addressing the UK's investment landscape.
Beyond pension reforms, the BoE governor also said businesses have delayed investment plans due to heightened uncertainty across the global economy.
Bailey explained: 'Looking more short term, what we are seeing is firms telling us that as we are seeing a higher level of uncertainty in the world economy, it is causing investment decisions to be delayed.
'That of course can include decisions over whether to raise capital and which markets to raise capital in.
'It is also a theme I pick up when speaking to firms, and that is not surprising as economic theory tells us that since investment decisions are irreversible so as uncertainty goes up you do see delayed investment.'
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The Bank's Financial Policy Committee (FPC) said in its latest report that trade tariffs could increase the risk of some businesses falling behind on loans, while a high proportion of the UK workforce is in sectors more exposed to global shocks.
Households and businesses nonetheless remain resilient, and the UK banking system is equipped to support them even if conditions significantly worsen, the FPC said in its latest report.
The FPC said there was a high degree of unpredictability around how global trade will evolve, with US president Donald Trump hiking tariff rates in April but negotiations with other countries over possible trade deals ongoing.
Conflict in the Middle East has also raised the risk of energy prices spiking, particularly if the supply of oil and gas were disrupted, the FPC found.
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This could particularly impact businesses that are more reliant on financing linked to global financial markets, which have faced turbulence in recent months.
'The potential for much higher trade tariffs increases the likelihood of corporate default in the most exposed sectors, and losses for their lenders,' the report read.
The outlook for the UK is weaker and more uncertain than it was in November, when the committee previously produced a report, it said.
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