ALEX BRUMMER: The Bank must avert a recession
Bank of England observers are confident the Monetary Policy Committee will sit idle next week when it sets interest rates for the final time this year.
If the Bank is, as Governor Andrew Bailey says, data-driven, it has little choice but to surprise the markets and cut rates by at least a quarter of a percentage point.
The momentum behind the economy heading into the summer has been squandered. Production fell by 0.1 percent for the second month in a row in October. The latest data shows that construction, consumer services and manufacturing are all moving in the wrong direction.
You don’t want to be too hard on Rachel Reeves and the Labor government. October’s growth figures predate the £40 billion tax hike budget, which has rattled Labour-supporting business leaders.
The prospects have been undermined by the devastating attacks on the Tory legacy. Reeves’s claim about the worst economic legacy since World War II was as strangely misleading as her resume. Starmer could not resist joining in the ominous forecasts, standing in the Downing Street rose garden in the summer, declaring that things would get worse before they got better and warning of a tough budget.
This was a self-fulfilling prophecy. When Labor released its misery forecast, growth was well established and inflation was under control. Preparing the ground for a tax-increasing budget may have seemed smart, and heaping criticism on his predecessors was acceptable. The trouble is that it scared the horses.
Decision moment: bank boss Andrew Bailey
Business and consumer confidence took a hit, new orders dried up and the labor market tightened. Deputy Prime Minister Angela Rayner’s planning reforms could potentially unleash the promised infrastructure and housing revolution. But even some ministers – think Health Minister Wes Streeting – do not seem confident that the €1.5 million target for new homes in this Parliament can be achieved.
The budget may have eased the uncertainties created by the rhetoric, but it will have done nothing to make trading feel better. All that has been heard since the Budget is that the rise of National Insurance has been disastrous.
Reeves argued before the CBI that there was no alternative.
There were several. It would not have been popular with motorists, but it would have been in line with green rhetoric if fuel taxes had not been frozen. I say that as someone with a gas-guzzling car!
The Bank’s minutes consistently remind us that it is its duty to stick to the 2 percent inflation target. We know that this was forgotten in the post-Covid era, and the Bank paid the price in terms of reputation. The substantial tightening of fiscal policy requires a monetary response if we are to avoid an unnecessary recession and prevent the housing market from derailing due to high financing costs.
Waiting costs jobs and prosperity.
Mail shock
How sad that Royal Mail has been fined by regulator Ofcom for the second year in a row for failing to meet delivery targets. Its performance in the last financial year was staggering, with only 74.7 percent of first-class letters delivered the next day. The second class fared better, with 92.7 percent arriving within three days, while the target of 98.5 percent was achieved.
The outcomes are disgraceful and speak of poor management, lack of efficiency and poor industrial relations. Letter Post is on a downward sloping surface, which should make achieving objectives easier. Volumes have fallen from 20 billion letters per year to 7 billion and are on their way to 4 billion.
None of this makes the prospect of ownership of the ‘Czech Sphinx’ Daniel Kretinsky attractive. Burdening the company with debt and entering into uneconomic union contracts can only lead to deteriorating performance and less investment. Consumers deserve better. But foreign ownership will not yield anything.
Bitter pill
Octogenarian Stefano Pessina was once considered the genius of the pharmacy. In 2019, he explored taking Walgreens Boots Alliance private at a valuation of $90 billion (£72 billion). Five years on, the group risks being buried under $36bn (£29bn) of debt, lease liabilities and legal claims over opioid prescriptions. A bailout bid of around $9 billion (£7.1 billion) by buyout group Sycamore is planned.
Easy to come, easy to go.
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