Just when it seemed like Liz Truss’ bond market shock was finally showing in the rearview mirror, the country is beginning to pay a heavy price for the Bank of England’s deplorable anti-inflation record.
The latest consumer price data was alarming enough for traders to send the yield on two-year gold-edged stocks to 4.39 percent.
British bonds have not taken such a hit since last autumn’s mini budget. Politically, this is not helpful to Rishi Sunak.
When the prime minister promised to cut inflation in half this year, there was rude cackling because it seemed too easy a target to achieve.
The thinking at the Bank of England was that prices were moving towards the target of 2 percent or even lower. At the Treasury, the sotto voce prediction was that five points could be shaved by the summer.
Inflation shock: Latest consumer price data was troubling enough for traders to send yields on two-year gilt-edged stocks soaring to 4.39%
Progress has been notoriously slow and the consumer price index (CPI) for April, which fell from 10.1 percent to 8.7 percent, is well above most forecasts.
Core inflation, excluding volatile energy and food prices, climbed from 6.2 percent to 6.8 percent, the highest level in three decades, driven by the cost of services.
This could be disastrous for the government, which is trying to control the wage demands of nurses, junior doctors and railway workers.
As worrying as it is, it could leave the Bank of England with little choice but to keep raising interest rates as markets price in a bank rate of 5.25% by the end of the year.
That in itself is self-defeating because it means higher floating and fixed rate mortgages, which increase the housing element in the pricing data.
There is a danger that the Monetary Policy Committee will decide it has no choice but to keep raising interest rates, even if it means killing a burgeoning recovery stone.
A disturbing social aspect of the Bank’s inability to accurately model and curb inflation is the soaring food prices.
You would now expect the energy, freight and logistics costs of Covid-19 and Russia’s war on Ukraine to have worked out.
Instead, inflation of food and soft drinks, at 19.1 percent, is barely lower than in March.
We have heard a lot about the milk price war. Less discussed is the fact that milk, cheese and egg prices have risen by 29.3 percent over the past year.
Since food prices weigh heaviest on the most deprived, this is unconscionable.
The IMF’s bit of economic optimism this week is on the horizon.
Mark shines
It may seem unfair to draw comparisons between the loss-making John Lewis and the recovery at Marks & Spencer.
But even a cursory visit to the menswear departments of both stores reveals a difference. At M&S, the carefully curated homegrown Autograph collection is much easier to navigate than a jumbled John Lewis layout of well-known brands.
Getting it right takes a long time. M&S has gone through many iterations since the glory days of Stuart Rose, but it took some technical development from an experienced retailer in Archie Norman (with a brutal store closing program) to make headway.
The impact is finally becoming visible: sales of clothing and houses have increased by 11.5 percent. The luxury food has led to a remarkable increase of 8.7 percent and has captured a share of 3.6 percent in a competitive market.
Under the leadership of chief executive Stuart Machin, M&S shares have revived over the past year, rising 46 per cent after a jump in recent trading.
The totemic retailer has a long way to go to reclaim its status as a star in the retail firmament, with stocks falling 40 percent over five years.
Healthy returns
Chief executive Amanda Blanc not only brushed aside most of Aviva’s disparate overseas operations, but also managed to shake Swedish activist Cevian off the stock register in record time.
This allowed the insurer to concentrate on domestic activities.
The large, fast-growing category in the first quarter was health insurance as customers seek private protection from unreliable NHS care.
There have also been additions to the buyout proposal for defined benefit plans, with funds up 26 percent in the first quarter, with Thomas Cook among the acquisitions.
Average income increases of more than 6 percent mean money is pouring into Aviva’s opt-in defined contribution funds.
The first quarter speaks well for Aviva’s two-tier general and lifetime offerings.
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.