UK must borrow to improve ‘depressing’ growth outlook, says hedge fund boss
Head of Caxton, one of world’s oldest macro funds, and Tory donor warns Labour is ‘no longer unelectable’
The UK should borrow more to fund targeted projects that stimulate productivity and growth, according to the head of Caxton Associates, one of the world’s oldest and biggest macro hedge funds.
Andrew Law, whose $11bn-in-assets firm has been one of the hedge fund winners of recent years, pointed to a “depressing” outlook for the UK economy, after last year’s economic rebound, with export growth lacklustre and investment spending “chronically weak”.
He said the government should aim to lift productivity by making “targeted investment” in skills and education, funded by the current low cost of long-term borrowing. Yields on 30-year inflation-linked bonds, for instance, which have been popular among institutional investors wary of consumer price rises, stand at minus 2 per cent. Yields fall as prices rise.
“The UK can’t increase its anaemic potential growth rate without increasing productivity,” he said. Through borrowing “there’s the opportunity for some targeted investment”.
“We’ve spent £400bn through Covid, but we are scared to have a long-term investment programme of even £10bn, financed at negative rates, to build a better future for the youth of today? That is the only long term solution to boost productivity nationwide,” he added.
His comments come after the UK economy grew by 7.5 per cent last year, its strongest growth since the second world war, although it lagged other developed markets during the pandemic.
But the Bank of England has warned that growth this year will be dragged down by the biggest contraction in household real income in 30 years, caused by rising inflation, higher taxes, and surging energy costs. UK inflation hit 5.5 per cent in January and, according to Bank of England forecasts, is set to peak above 7 per cent in April.
UK public sector borrowing has surged to a record high during the pandemic. In the 10 months to January it was still £138.5bn, its second highest level for that period since records began in 1993, but below forecasts, helped by tax receipts.
Law said that the UK was on course for a consumer recession, as a cost of living crisis bites, with “large swaths” of households having little in the way of savings to call on.
“The household sector in particular [is] looking dire,” he told the Financial Times.
“I think it’s going to be very painful later this year and into next year [for UK households]. The chances of a consumer recession are high.”
Law, who has donated millions of pounds to the ruling Conservative party, also said that the government “needs to get things done” and that the opposition Labour party now looks more electable.
“The pressure is on them [the government] to deliver, the time for promises is over. Labour is no longer an unelectable party,” he said.
Caxton, founded in 1983 by US billionaire Bruce Kovner, made record gains in 2020, helped by bets on falling bond yields and from trading gold as central banks raced to stimulate economies during the onset of the coronavirus pandemic. More recently, it has prospered thanks to bets on surging inflation.
In February the FT reported that Caxton was raising fees on its flagship global fund and preparing to shut its macro fund to new money.
Law also said central banks’ policy mistakes through the coronavirus pandemic, in the form of overly large bond-buying programmes, would hit younger and poorer parts of society hardest.