On the go: Interest rate liability hedging activity surged by more than a quarter in the last three months of 2021, according to new data from BMO Global Asset Management, a jump which the asset manager attributed to Omicron-driven pessimism about the economy.
Interest rate hedging grew to £46.5bn, an increase of 27 per cent, while inflation hedging lifted by 24 per cent, to £24bn. BMO said that hedging activity was concentrated in October and November.
In December, the Bank of England said it expected inflation to reach around 6 per cent in spring 2022. Price increases have been driven by factors including the UK’s economic rebound as it emerges from the coronavirus pandemic, along with supply chain pressures.
The central bank increased interest rates to 0.25 per cent from 0.1 per cent in December, and is expected to do so again this week when the Monetary Policy Committee convenes on February 3.
Rates are anticipated to rise to 0.5 per cent, in the view of 80 per cent of counterparties surveyed by BMO.
“In Q4 2021, the prospect of economic growth and policy normalisation dominated until the emergence of the Omicron variant,” said Rosa Fenwick, liability-driven investment portfolio manager at BMO.
While schemes are taking action to combat surging inflation, savers are increasingly struggling with increases to the cost of living.
Rising living costs have left almost half of individuals not yet in retirement fearful of their abilities to save, according to a survey from the Pensions and Lifetime Savings Association in January.
