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Sterling was in calmer waters yesterday after Monday’s feeding frenzy, but the storm is far from over.
Huw Pill, the chief economist at the Bank of England, has indicated that interest rates will rise, but not before November, when the next Monetary Policy Committee meeting is on the agenda.
A lot is going to happen that month.
Chancellor Kwasi Kwarteng and Bank of England Governor Andrew Bailey must act quickly to convince markets, voters and critics that the situation is under control
Chancellor Kwasi Kwarteng says he will outline his medium-term budget plan on November 23 with new rules to balance the books.
And for those who denounced the Office for Budget Responsibility’s lack of independent analysis last week, he promises a full forecast of the OBR.
Expectations are mounting, but the idea that the world will wait patiently until the end of November is for the birds. It leaves a long and dangerous vacuum.
Quarteng and Bank of England governor Andrew Bailey must act quickly to convince markets, voters and critics in the Tory party that the situation is under control. The Chancellor’s mini-budget was certainly not the wild and reckless exercise portrayed by some.
For starters, the tax cuts are offset by the little-noticed effects of tax barriers, which will bring in a lot of extra money.
Kwarteng has put in place a four-year freeze on thresholds and allowances which, thanks to inflation, will bring in around £45bn in additional revenue.
Most ‘austerity measures’ are holding back ex-chancellor Rishi Sunak’s increases in national insurance and corporate taxes.
The growth-enhancing measures, including investment zones, reform of pension fund rules and incentives for companies to invest, are eminently sensible.
Productivity and real wage growth in this country have been stagnant since the financial crisis. Business investment is lagging behind the OECD average. Kwarteng makes an offer to do something about it.
The attack on him and Liz Truss was disproportionate and at times shockingly vicious. Low taxes and high growth are two important Tory virtues.
A third is fiscal responsibility. Unfortunately, by failing to flesh out his plans to balance the books in the medium term, Kwarteng left an open target for his critics.
oil sprayer
One couple who don’t have to worry too much about their wallets are Dave and Debbie Hardy, who run a construction company in the Midlands. The pair are the largest shareholders of the North Sea energy company Serica.
It is unusual to see individuals, rather than large institutions, at the top of a stock register. Whatever caused their investment, it’s been a very smart move.
Shares in Serica are up 42 percent this year and 1170 percent in five years, closing at 355 percent yesterday. That’s a huge paper gain for the Hardys, who bought for just 3 pence a share a few years ago. Their holdings are now worth around £100 million.
Serica is benefiting from the boom in North Sea oil as the UK and other countries try to become less dependent on Russian energy.
More than 85 percent of production is gas, providing an alternative source of domestic supply – about 5 percent of the total.
The shares suffered after Sunak imposed a windfall tax, but the company believes it can use investment deductions to reduce its liabilities.
Profits have exploded in the first half of this year to just under £200 million, from £2.2 million for the same period in 2021.
A dividend of 8 pence per share announced yesterday will net them a further £2.3 million in November. Dave and Debbie must have a good claim to be Britain’s smartest private investors.
Trash can of history
As I warned earlier this week, the fall in the pound has made British companies a target for American predators.
While the market turmoil has had a chilling effect, the pound’s weakness is still a powerful pull for bargain hunters.
Biffa, the waste disposal company, is the latest to succumb to a bid from US buyout barons Energy Capital Partners (ECP), which has been reduced from an initial proposal at the beginning of the summer.
In the current tinderbox climate, lenders are less willing to put down large sums to finance acquisitions, so the deal has been scaled back to push it through.
As a result, ECP may have struck even more of a bargain.
Waste management is of course not a strategic industry comparable to defense.
But Biffa is a strong brand and a UK market leader in an industry that should have growth potential given the interest in recycling and sustainability.
Another bites the dust.
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