Asset owners should brace themselves for a year of economic turbulence due to Russia’s invasion of Ukraine, a senior Bank of England (BoE) figure has warned.
Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment Conference in Edinburgh today, DeAnne Julius, a sitting member of the BoE’s monetary policy committee, outlined a host of economic challenges facing pension funds in the months ahead.
The central bank policymaker noted that the global economy is transitioning to a new economic pattern due to the war in Ukraine, flagging the S&P 500’s dismal performance as evidence of this sea change. Since the start of the year, the US index of tech-heavy companies fell from 4,796 on 3 January to 3,941 at the close on 24 May.
Despite the sobering outlook, Julius said a prolonged recession was unlikely and instead focussed on the potential long-term benefits to western economies, from the mass migration of skilled Ukrainians.
She said: “I don’t think we’ll fall into recession in this country, except possibly in the technical sense, falling to just below zero, but I think we will pretty much be flatlining for the year.
“There’s a big refugee inflow into Europe and there will be costs and benefits. Costs to governments, in particular, to support the refugees, but many of these people, if they stay in our country, can give us long-term benefits. They are very motivated, well-skilled people.”
Julius explained that Russia’s invasion of Ukraine has added further pressure to global supply chains, which had already been disrupted as a result of the COVID-19 pandemic. Further disruption from the war has harmed investor sentiment and global economic growth, she explained.
She addressed the current high levels of inflation, which have challenged pension funds to think creatively about asset allocation, stating that she believed within a year that “inflation will almost certainly be lower than it is today.”
However, she said it was unlikely that the BoE would wrestle inflation down to its 2% target within that period.