ALEX BRUMMER: Excessive rate hikes won’t help if it’s supply-side problems that are the main driver of higher prices
Groupthink not only governs within the Bank of England, but is a common thread between central banks.
Until November 2021, Andrew Bailey and the Bank of England had consistently argued that higher inflation was transitory. Then it worried it was getting more persistent and with today’s widely expected surge, the bank will have raised the cost of borrowing from super low Covid levels for six months in a row.
The only question is whether the Monetary Policy Committee will be concerned enough to raise interest rates by half a percentage point to 1.75%.
Until November 2021, Andrew Bailey and the Bank of England had consistently claimed that higher inflation was transitory.
That could be a demonstration that it really means cutting the cost of living hard, even if there is early evidence that input prices are starting to moderate. If so, we should all pray for British business to resist ‘greed’ – the temptation to use inflation as a cover to boost profit margins.
Should the Bank decide to make the biggest rate hike since independence in 1997, it will be in good company. The US Federal Reserve raised interest rates by 0.75 percentage point last week.
The Bank of Canada has gotten better and raised its rates by a full percentage point. Around 12 full percentage points of gains have been realized around the world, including emerging markets. Equally important is the effort to end quantitative easing.
Only in the EU, where the European Central Bank has created a new financing facility to help Italy finance its loans, are the printing presses still running. With this degree of similar thinking in the world of central banking, it won’t be long before parts of the world will fall into recession and there will be debate as to whether the cure is worse than the disease.
Nobel laureate New York Times columnist Paul Krugman has already written about the dangers of ‘masochistic’ monetarism. Sledgehammering output when supply-side problems are the main cause of higher prices isn’t necessarily going to help.
Bailey has so far taken a gradual approach to raising rates, which has allowed growth in key sectors of the economy, services and manufacturing, to continue in positive territory. If Bailey and his merry crew fail to continue with a half percentage point increase, it could be seen as yet another stumbling block.
Chancellor Nadhim Zahawi’s apparent decision to lobby SoftBank to bring the IPO to the FTSE100 is an admirable piece of activism.
But if a more modest increase meant the economy could still grow, rather than stagnate, then maybe, just maybe, it could be the way to go.
A sense of urgency was lacking in the UK’s approach to win Arm Holdings’ return to the London Stock Exchange. So the apparent decision by Chancellor Nadhim Zahawi to lobby SoftBank to bring the IPO to the FTSE100 is an admirable piece of activism.
It should not be forgotten that Masayoshi Son, the boss of SoftBank, gained control of Arm in the first place through intense lobbying of Downing Street and then-Chancellor Philip Hammond. Writing letters and relying on officials is no substitute for twisting the arm in person.
The argument is made that the London Stock Exchange does not have enough weight in growth stocks. That’s how. Fund management and finance are truly global and all the major players are in both London and New York. Meta is about to move her Instagram activities to Kings Cross.
New research by Dealogic and the FT shows that European stocks, such as Soho House owner Membership Collection Group, have been underperforming in New York — down 47 percent on average since 2020. Nasdaq, for all its hype, is one home to fallen dreams. It’s a good time to stop being passive about the city’s great credentials.
The latest UK-listed company to exit is Czech cybersecurity firm Avast, which is being swallowed up by its US rival NortonLifeLock for £7.1bn after the deal was approved by the Competition & Markets Authority. How easily the British market is stripped of technical ballast.