According to BlackRock, the world’s largest asset manager, the world is entering a new era of low growth and high interest rates.
The report warned that inflation would be far more volatile than in recent years, and that the economy would no longer be able to grow as quickly as before without raising prices.
“We are now in an environment with structurally slower growth and structurally higher interest rates than before the pandemic,” said Alex Brazier, deputy director of the BlackRock Investment Institute and a former Bank of England official. There is,” he said.
He added: “We’re not going to go back to how things were before.”
BlackRock, which manages assets worth $9.4 trillion (£7.5 trillion), said the market was still adjusting to this new reality. As a result, investors have had to be more selective and precise in order to make profits than in the past 15 years of mostly low inflation, the report said.
The asset manager said several major changes, including an aging population, increased investment in climate change and the race for AI, will push up inflation and make it more volatile.
But BlackRock said in its World Outlook for next year that soaring government spending and debt levels after the pandemic were also constraining central banks.
“Given high government spending and debt burdens, central banks appear to be able to withstand higher inflation,” the report said.
Mr Brasier warned that geopolitical tensions meant inflation shocks were more frequent, while the UK economy’s ability to supply goods and services was being reduced.
“This is in sharp contrast to the past 20 years, when central banks were always trying to push up inflation because all the inflation prospects were to the downside,” he said. If this situation reverses, we will have to get used to interest rates being much higher than before the pandemic in the long run. ”
This comes after the British Chambers of Commerce (BCC) warned that investment in the UK will be depressed next year due to record increases in the cost of raising the minimum wage for businesses.
The BCC has cut its outlook for UK business investment for next year, as businesses face rising costs, the burden of spending from high interest rates and weaker trade.
Over the summer, the firm predicted a 0.1% contraction in 2024, but now expects business investment to contract by 0.8%.
This is in sharp contrast to the 5.6% growth recorded in all of 2023.
“A minimum wage increase early next year will further impact investment concerns among businesses as cost pressures increase,” said Vicky Price, chair of the BCC’s Economic Advisory Council.
Last month, Prime Minister Jeremy Hunt announced a record rise in the National Living Wage, worth more than £1,800 a year for full-time workers. He also raised the minimum wage for 18- to 20-year-olds. This will increase the cost of hiring 2.7 million workers from April 2024.
Companies are also grappling with EU red tape. Exports fell by 0.5% in 2023 as a whole, but will only increase by 0.5% next year, according to the BCC.
The BCC currently expects the UK economy to grow by 0.4% next year. This is a slight increase from the previous forecast of 0.3% growth, but the forecast for 2025 has been revised downward from 0.7% to 0.6%.