All those homeowners and businesses wanting a cut in the Bank of England’s base rate this June have been given new hope.
The message from across the Atlantic is that US inflation is moderating and the booming post-pandemic economy may be taking a breather.
Strictly speaking, Britain and the Eurozone do not need to pay attention to US inflation, production and monetary policy.
But it’s impossible to ignore the sentiment in Washington and on Wall Street.
One barrier to the Bank of England cutting its bank rate from 5.25 percent to 5 percent next month is the stubbornness of U.S. prices.
Time for action: Governor Andrew Bailey has publicly argued that Britain does not need to keep up with America
Expectations that the key US Fed Funds rate would remain unchanged have kept the dollar strong.
A weakening of the British pound against the dollar will affect the cost of living in Britain because much of its imports, especially oil and natural gas, are priced in the US currency.
The latest US data shows that overall consumer prices and core inflation (excluding energy and food) are falling.
With pressure on the US cost of living easing – headline inflation fell from 3.5 percent in March to 3.4 percent in April – markets are betting that the US central bank will cut its key interest rate as early as September.
That should give central banks room to maneuver elsewhere.
Governor Andrew Bailey has argued that Britain does not need to keep up with America, on the grounds that our inflation is rooted in the supply side of the economy, particularly in energy prices.
In the US, strong consumer demand and a vibrant labor market were the key factors as the recovery accelerated. There are other forces at work.
Monetary policy is not an exact art and Bailey was on the wrong side of history when prices soared in 2021 and he kept rates too low for too long.
As former Federal Reserve Chairman Ben Bernanke noted in the House of Commons yesterday, the Bank’s predictions are incorrect because it has not taken into account factors such as energy subsidies in the recent past.
The concern now is that the Monetary Policy Committee (MPC) that sets interest rates is making a mistake again and keeping borrowing costs too high as energy costs plummet.
By doing this they will unnecessarily hurt consumers and businesses and damage trust and recovery. The MPC must end the indecision and cut rates next month.
Fight back
The London Stock Exchange Group (LSEG) has been in the spotlight in recent months.
Any exit from the FTSE 350 was seen as a fatal blow and the inability to land initial public offerings (IPOs) such as Arm Holdings was seen as a symbol of the city’s decline.
The IPO drought could soon be over if Asia-based fast fashion star Shein follows computer maker Raspberry Pi into the market.
The ice cream department of Unilever and De Beers are waiting in the wings. It is a mistake to view the LSEG simply as a stock market. There’s a lot more going on than that.
It is a data powerhouse, operator of Europe’s largest derivatives clearinghouse, has currency and fixed income trading platforms and is Bloomberg’s main rival on trading desks around the world.
The company’s status as a Square Mile mainstay was underlined when investors sold a £1.6 billion stake in the group this week, ending Thomson Reuters’ involvement in the shareholding. The LSEG remains a customer of Thomson Reuters news.
Remarkably, the share sale was achieved at a premium, demonstrating both the attractiveness of LSEG shares and London’s liquidity. Well done!
Nerves of steel
If BHP thought a slumbering Anglo-American would be easy meat, it miscalculated.
Top 50 investors and South African authorities have come to their defense.
Chairman Stuart Chambers and Anglo are determined to show some shock and awe.
The first asset out the door will likely be the controversial but valuable steel coking coal operation, at a decent price of a whopping £4.75 billion.
That’s more than the Royal Mail!