ALEX BRUMMER: The BoE’s nasty projections for our economic future
>
ALEX BRUMMER: The BoE’s nasty forecasts for our economic future are set on a path of increased interest rates to 5.25%
The future direction of interest rates may look much brighter than they did a few weeks ago.
The Bank of England, as usual, has derived its forecasts from market rates as it is the only solid indicator it has on hand.
All of his dire forecasts for our economic future — from a protracted recession to an unemployment rate of 6.5 percent to the current 3.5 percent — are set on a path of increased rates to 5.25 percent next year.
“The Bank of England has, as usual, derived its forecast from market rates as it is the only solid indicator it has on hand.”
As good as the barometer is, markets are still feeling some of the aftershocks of the Truss/Kwarteng interlude, although many of the proposed tax cuts and energy subsidies have been abolished after April next year.
What’s even more fascinating is the central projection of the Monetary Policy Committee (MPC) fixing interest rates showing that inflation will decline from early next year and that consumer prices will be “somewhat well below” the 2 percent target by November 2024. could drop.
If this proves to be the case, much of what it has to say about the outlook for output and jobs could be set aside. An alternative assumption that the interest rate remains constant at 3 percent (the current bank interest rate after the last three-quarter percentage point increase) would mean much stronger economic activity.
More interest rate hikes are likely to come and the high will be somewhere above 4 percent. After the slow climb, the UK is now in sight of peak rates. But it begs the question of why the bank would base its key forecast on market rates it doesn’t really believe in.
Two dissenting outside MPC members, Silvana Tenreyro and Swati Dhingra, who voted for smaller increases, may be showing foresight.
German lessons
Listen to the rhetoric of the British political classes and you think everyone in the energy supply chain is thinking it up at the expense of consumers.
The left points to the French EDF, which recently returned to full state ownership, as an example of what the UK would do. Labor wants to create a new force in the energy market called the Great British Energy Company.
It must be careful what it wishes. Harbor Energy, the largest oil and gas producer in the North Sea, will not rush to secure new operating licenses if ‘windfall taxes’ are extended. The company makes it clear that a £350m levy on its operations will affect its investment plans.
Harbor Energy, the largest oil and gas producer in the North Sea, will not rush to obtain new operating licenses if ‘windfall windfalls’ are extended
The impact of the war in Ukraine on major energy companies is proving just as costly as the banking crisis of 2008. German energy group Uniper has just revealed that it has lost £35 billion in the first nine months of the year.
That’s the largest deficit ever reported by a German company and exceeds the £24bn red ink at the Royal Bank of Scotland (now NatWest) following Fred Goodwin’s leadership in car accidents. Most of Uniper’s losses are attributable to its efforts to secure gas supplies for German homes and factories as a result of the cessation of Russian supplies. It has been busy securing energy reserves to keep the lights on.
The company’s survival is only possible thanks to a pledged £25 billion bailout from Berlin. There is no room for any damage in Britain as Uniper operates seven power stations, a fast cycle gas storage facility and two high pressure gas pipelines in the UK.
How all that will be affected by Uniper’s trials and rescues is a mystery. What it does show is that the idea that contingency taxes alone can solve the problems of the UK energy market is fake news. Britain does not need a state energy company where the losses, as in Germany, are borne by the taxpayer.
Eat better
Sainsbury’s is in a tricky position, caught between suppliers who insist on maintaining profit margins and competitors who are concerned with cutting prices.
It has chosen to sacrifice margins to compete, with the same store sales up 3.7 percent, helped by cheaper private label ranges. Moreover, despite the pressure on real incomes, Argos – the Sainsbury’s catalog seller – is getting some momentum into the holidays. Some seasonal cheers for investors.