ALEX BRUMMER: Putting the inflation genie back in the bottle

Oh what a coincidence! The world’s top central banks – our own Bank of England, the US Federal Reserve and the European Central Bank – all chose to give the same pre-Christmas gift of a half percentage point rate hike.

Putting the inflation genie back in the bottle is proving a tough call as UK consumer prices are rising by 10.7 per cent, more than five times the Treasury’s 2 per cent target.

Since Governor Andrew Bailey and the Bank of England put the UK on a path of higher interest rates a year ago, it has raised interest rates nine times and, at 3.5%, UK interest rates are at their highest level in a decade.

It is the fastest rise in interest rates since 1989, when then-Chancellor Nigel Lawson embarked on a losing battle to preserve the value of the pound against the Deutsche Mark, which eventually led to the humiliating withdrawal of Great Britain. Britain from the ERM, the forerunner of the eurozone. , in 1992.

Even though US and UK interest rates have gained momentum in recent months, they are unlikely to stay that way.

The Fed and the Old Lady both fight a common enemy, but the sources are different. In the United States, Jay Powell and the Fed mainly try to control demand-driven inflation.

A combination of worthless money printing by the Fed and fiscal laxity by the Trump and Joe Biden administrations created an unsustainable consumer boom that has driven up prices and wages.

Taming US retail sales is proving more difficult than expected and analysts argue that the US economy is heading into next year with more momentum than forecast, which could mean that the current higher interest rate cycle in the US has a long way to go.

In Britain inflation is largely driven by the supply side of the economy with the war in Ukraine, energy costs and the remnants of the covid policy.

The Bank is also concerned about the labor market. Private sector wage agreements stood at 6.9 percent per annum in November, well below inflation.

Many of the plaintiffs in the current series of strikes are seeking full or near cost-of-living increases. Since many of the striking workers are in the public or near-public sector, it is possible that they could be absorbed without direct inflationary consequences.

The six members of the Bank’s rate-setting Monetary Policy Committee who voted for a half-point rate hike fear secondary consequences.

Cost-of-living wage settlements can hamper private sector bargaining, leading to a wage-price spiral, contributing to government borrowing bulge and negatively impacting the country’s long-term creditworthiness by increasing costs to taxpayers of unfunded defined benefit plans are increasing.

There are glimmers of light from the Bank of England after its doom prophecies a month ago. The economy appears to be less weak than expected.

Supply chain disruptions are easing, the price of oil has fallen and a near 3% rise in the pound sterling should ease domestic price pressures.

Anyone considering refinancing a fixed-rate mortgage now may be advised to wait if long-term interest rates level off or fall. But no one should fool themselves that the great days of super low mortgage loans or competitive fixed rates are coming back.

There are some signs that smaller players in the savings market are finally recognizing the blow loyal savers have taken from the higher cost of living.

It is time for the Big Four high street banks to take the stage and end their version of greed inflation – increasing margins at the expense of customers.

Washed away

The numbers from Currys, Britain’s largest electrical goods chain, are a mixed bag.

There is a huge pre-tax loss of £548 million, largely caused by a large goodwill write-off caused by the chaos in the Liz Truss gilts market.

The real business of selling electronic goods has been hit hard by price competition in Scandinavia, where about 40 percent of revenue is earned.

The first half was saved by a strong performance in the UK, where demand for electronic goods and more energy-efficient washing machines and dryers was strong.

A huge blow to Currys stock price was cut in half by the end of the game.

CEO Alex Baldock seems to have convinced doubters that everything will be fine that evening.