Don’t delay rate cuts: Bailey must take the lead and give growth a chance, says ALEX BRUMMER
Andrew Bailey used to work at the Bank of England, where he dealt with the money markets on a daily basis. He knows all too well that banks don’t like surprises.
There is near-unanimity among market observers that the governor and the rest of the nine-member Monetary Policy Committee (MPC) that sets rates will keep rates at 5 percent next week, following a quarter-percentage-point cut in August.
Such speculation focuses on voting behavior, with Goldman Sachs expecting a 7-2 majority to retain, and Morgan Stanley and others expecting a 6-3 majority.
There is some disagreement among analysts about the extent of quantitative tightening, a policy that reduces the size of the bank’s balance sheet and tightens policy.
Time for a decision: The Bank of England, led by Governor Andrew Bailey (pictured), is expected to keep the bank rate at 5% next week after cutting it by a quarter of a percentage point in August.
If, as Goldman expects, UK interest rates normalise to 3 per cent next year, why not just get on with the job? There is nothing in the latest data that really gives pause for thought.
Despite public sector salaries being above inflation, average weekly wages are falling.
Consumer prices did rise in August, but they will not deviate far from the 2 percent target.
The European Central Bank this week opted to look beyond headline prices and prioritize growth, cutting rates by a quarter of a percentage point to 3.5 percent.
The US Federal Reserve, which announces a rate decision on Wednesday 24 hours before the Bank of England, is also expected to cut rates.
Inflation is no longer the big concern among central bankers. The current concern is whether monetary medicine has gone too far and will hamper growth.
Signals from Chancellor of the Exchequer Rachel Reeves are for a austerity budget that will reset the public finances. Election and policy uncertainty, not to mention the dead hand of Labour rhetoric, have slowed a nascent recovery in July.
The Bank’s role should be to get behind growth now that supply inflation has been overcome. Expanding output is the best way to overcome deficits and debt.
At present there is only one sure voice on the MPC for lower rates, from associate LSE professor Dr Swati Dhingra. She is likely to be joined by former mandarin Dave Ramsden.
Many mortgage lenders, looking at future interest rates, have read the runes and have started offering better fixed rates to borrowers. The new lean governor should lead from the front next week and give growth a chance.
Better signals
It is disheartening that Vodafone, once a leader in mobile telephony, is waiting for the Competition & Markets Authority (CMA) to pave the way to future prosperity.
The proposed £15bn deal with Hutchison-owned Three is seen as the best way to save the shares, which have fallen 52 per cent in the past five years.
They have seen a small revival since Margherita Della Valle took over in April 2023. Regulators were reluctant to approve the deal.
The latest announcement from the CMA shows that Vodafone is finally gaining some advantage.
The UK’s overcrowded telecoms sector has led to a shortage of 5G networks, leaving us at the bottom of the European rankings.
Vodafone stresses that normal economics do not apply in the telecoms market and that the deal, which would create a company that can effectively compete with EE (owned by BT) and Virgin Media O2, could lead to greater price competition.
It will provide better choice for third-party operators such as Sky Mobile, Tesco and Lyca Mobile, who benefit from existing networks. To demonstrate this, Vodafone has pledged to telecoms regulator Ofcom that it will spend £11bn upgrading networks. Bellissimo.
Better Snaps
Are cameras the new chronographs? Readers of glossy magazines will be more than familiar with the increasingly luxurious promotions of watches.
The bottom of the camera market fell out as mobile phones became more advanced. Samsung’s superior camera technology forced Apple to catch up with the iPhone 4. Affluent consumers always want something better.
The Economist reports that there is a waiting list for the new compact German Leica with a base price of around £4,600.
Fujifilm’s premium X100 has sold out and due to dynamic pricing the camera is selling for much higher than its original price of £1220.
Nikon is back in the snaps game with a premium model. Time to dust off that vintage Canon. Could be the next Rolex.
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