Get ready: interest rates to go up in February says UBS

THE Bank of England will start to increase the cost of borrowing money from February next year, an influential economist has predicted.

Bill O'Neill, head of the chief investment office at UBS Wealth Management UK

Bill O’Neill, chief investment strategist at UBS Wealth Management, said the Monetary Policy Committee will hike interest rates to 1.5 per cent by the end of 2015.

Speaking to The Yorkshire Post during a dinner in Leeds, he struck an upbeat note on the prospects for the UK economy.

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He said: “I’m optimistic on the UK economy. I think we have a fair amount of slack that we can use up. But that doesn’t militate against an early and modest hike in interest rates.”

He said UBS expects a very extended period of growth in Britain before the economy becomes overheated again.

“The interest rate story is crucial in that. We see the first rate hike in February 2015 and then a series of rate hikes through 2015.

“The peak for us on interest rates is likely to be 3-3.5 per cent.”

Mr O’Neill said there appears to be the start of a process of convergence between the performance of London and the rest of the UK.

He cited recent reports on the UK commercial and residential property markets, the return of the first-time buyer, particularly in the regions, falling unemployment rates across the board, apart from in Northern Ireland, and a sharp improvement in business confidence.

“This isn’t just a South East, metropolitan London phenomenon,” said Mr O’Neill.

Nick Tucker, head of UK Wealth Management at UBS, said the bank has seen a significant pick-up in activity across its regional offices - Edinburgh, Newcastle, Manchester, Birmingham and Leeds - over the last year.

“Corporate activity is clearly a lot higher. It has a pretty firm foothold. This isn’t just a short-term thing,” he said.

UBS opened in Leeds nearly three years ago. Mr Tucker said: “We see the Yorkshire area as under-serviced from a global wealth management perspective and therefore we see our value proposition as being of interest.

“It has certainly been our fastest-growing office this year, compared to all our other regional offices.

“The growth rate has outstripped our expectations when we opened, hence the fact we are now running out of space and looking to expand.”

Mr Tucker said UBS is committed to the UK regions.

He added: “You have got to have a long-term perspective, you have got to be prepared to stick it out, you have got to spend time and not expect to have instant rewards.

“That’s why we have grown our regional network over the last 13 years in the UK slowly but surely.”

Zurich-based UBS offers a combination of wealth management, asset management and investment banking services on a global and regional basis.

Mr Tucker said: “The world is a smaller place these days and what happens in Yorkshire is influenced by what is happening throughout the rest of the world.”

He backed London to retain its place as one of the global financial capitals alongside New York, Singapore and Switzerland.

He added: “We obviously have legal infrastructure that is globally respected and we have a lot of specialist talent. We are an attractive place to be.

“Given some of the developments in the emerging markets that’s an opportunity for London and the UK.”

These include recent discussions to set up a clearing bank in London for China’s currency, a milestone that will put the City in a leading position to offer yuan trade business in Europe.

Earlier this month, shareholders of UBS backed the board and management despite opposition due to the Swiss bank’s involvement in various scandals, including a global probe into the $5.3 trillion-a-day foreign exchange market.