ALEX BRUMMER: Bank faces autumn test 

The original reason for bringing the Autumn Statement to Halloween was to calm the financial markets about the UK’s tax regime and to give the Bank of England more visibility when it sets interest rates next week.

It may have been a gift to cartoonists and headlines, but not stability. The last thing the government of Rishi Sunak needs is a hurried, ill-considered statement that can be challenged by critics.

In addition, if temporary tax hikes are introduced – heavy bets will be placed on bank robberies – Chancellor Jeremy Hunt, a more measured and serene figure than his predecessor Kwasi Kwarteng, will want to understand what is possible.

There may be a small window for tax hit as the banks throw away big profits. The ATM ran hard at HSBC, Barclays and Standard Chartered in the third quarter (as well as on the mainland).

But it’s worth wondering how sensible it would be to take £35 to £40 billion from the banks in a few years, when the global economy is slowing and all sorts of volcanoes could erupt in the non-bank financial sector.

The banks were not made stable after the financial crisis to blow up at the first smell of cordite. The fiasco over liability-driven investments (LDIs) in our pension funds is worth considering.

It would be helpful if the Bank of England had a clearer picture of fiscal policy before making its November interest rate decision next week, but the idea that Governor Andrew Bailey and his company are driving blind doesn’t quite add up.

There are a number of forecasters pointing to a £40 billion deficit in public finances. Indeed, the chancellor promises to hook it up. We should also not forget that next week there will be a Treasury mandarin at the Monetary Policy Committee meeting. The last time we were out was top economist Clare Lombardelli, who could certainly advise.

In addition, Messrs Hunt and Bailey have regular telephone contact in these nervous days in the world markets. Indeed, Bailey was one of the first to be warned in advance of the November 17 fall statement change dates.

There are a number of forecasters pointing to a £40 billion deficit in public finances

The Bank has two decisions to make. It should review interest rates and decide whether to initiate quantitative tightening. The message from the International Monetary Fund meeting was that if central banks want to curb inflation, they had better do it resolutely.

Markets expect the Bank to raise interest rates by three quarters of a percentage point from 2.25 percent to 3 percent. Similar three-quarter point gains are expected from the European Central Bank today and from the US Fed next Wednesday.

If the Old Lady doesn’t keep up the pace, it could be a setback for gold plated and sterling silver. The Bank may be advised to proceed with caution with its announced intentions to re-sell bonds on the market. The previous intervention to calm the gilts was for financial stability reasons with the aim of preventing the LDI eruption from turning into a cascade of insolvencies.

Yet it was widely interpreted in some quarters as printing even more money, as in previous market disruptions. As much as the Bank would like to demonstrate that the stability and monetary faucets work independently, there will undoubtedly be confusion.

It might be better to wait rather than start so soon with the £100bn monetary tightening target for this year.

price pain

Should consumer goods companies be better corporate citizens? Faced with the choice to take the pain of cost increases, people like Reckitt Benckiser tend to favor investors over customers.

But there is a danger. By preserving the value of super brands like Cillit Bang, Clearasil and painkiller Nurofen and pleasing shareholders, there is a risk that consumers will find cheaper copycat brands – painkillers being a prime example – do the job just as well. And the risk is a permanent loss of customer loyalty.

Basic economics tells us that if you lower the price, or at least maintain it (in an inflationary environment), demand for the product should increase. Until now, the big players – Reckitt, Unilever and Nestle – have chosen to keep pace by passing on costs. When Reckitt finally finds a chief executive, he or she may have to break through the ranks and put the consumer first. Longer-term gains could exceed investor dissonance.