ALEX BRUMMER: Time to pause rate rises

Now that the Senate has approved the new US debt ceiling and a government default has been averted, huge uncertainty has been lifted from global markets.

In the US, the debate of budgets is shifting back to the core obsession of what the Federal Reserve will do when the US central bank meets on June 13-14.

US labor market data showing wage growth slowing in May as an unexpected 339,000 jobs were added to the workforce will be a key indicator for rate setters. Fears of US core inflation at 5.5 percent (lower than Britain’s 6.8 percent) have led to indications from the Fed that there may be no pause in rate hikes.

But opinions among members of the Fed’s open market committee, which makes interest rate decisions, are shifting. Philadelphia Fed President Patrick Harker proposes to cool the rush to higher rates.

Here, the Bank of England has been given carte blanche by Chancellor Jeremy Hunt to raise interest rates even if it pushes the UK into recession.

That could put Governor Andrew Bailey and the nodding dogs on the interest-rate-setting monetary policy committee off the hook on the next decision.

If Bailey truly believes that excessive money supply growth has not been a factor in the UK’s persistent cost-of-living crisis, there is little point in continuing to raise borrowing costs. The upward shift in market interest rates, along with the rise since the last official inflation figures, is already having a nefarious impact.

Favorable fixed rate mortgage deals have come off the table. The Nationwide drew attention after it reported that home prices are 3.4 percent lower than they were in May 2022.

The data should be interpreted carefully as the index is based only on its own customers and excludes buy for rent.

In any case, it should not be a cause for panic. If prices fall, that could put homes in better reach of those excluded from home ownership.

It is hard to see why the Chancellor would think a UK recession is acceptable.

Less than two weeks ago, he stood next to the managing director of the International Monetary Fund, Kristalina Georgieva, to celebrate the upgrade of the British production forecast for this year.

One possible explanation is concern among officials that prices are not falling fast enough to meet Rishi Sunak’s target of halving inflation this year.

Plus, he doesn’t want his treasury to be tarnished by the same kind of gold market tantrum that Liz Truss is dealing with.

Monetary policy works slowly.

One cannot underestimate the impact of the increase in bank interest rates from 0.1 percent to 4.5 percent on every aspect of the economy, from ordinary households to debt-laden businesses and homes and real estate.

The fear must be that central banks, which misjudged prices during the advance, are now missing the slowdowns in the system.

The Office for National Statistics reports that the average gas price this week is 48 percent lower than the same week last year and 87 percent after the August 2022 peak.

According to the UN, world food prices are 22 percent below their March 2022 peak.

Bailey and the bank need to wake up, smell the coffee and hit the pause button for interest rates.

Pet hate

Private equity’s assault on London-listed companies does not seem to be abating, despite the rising cost of debt.

Veterinary vaccine group Dechra’s future is in jeopardy after it agreed to a £4.5bn cut from Swedish predator EQT.

Instead of championing life sciences independence, chairman Alison Platt laid down the welcome mat, declaring it was “an attractive opportunity for shareholders.”

Selling a group of animal vaccines while pet suppliers and veterinary practices are booming is absurd.

Under the control of private equity, jobs are being cut behind closed doors, research budgets are slashed and, as Asda and Morrisons have learned, debt service can become a burden that hinders investment.

The incentives for executives to sell are immense, with CEO Ian Page ready to fill his boots.

The Dechra deal goes against the public interest, stripping command and control of Britain’s scientific industries and diluting the corporate tax base.

This is nothing more than shabby betrayal of UK plc.