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Bank of England watchers are convinced the Monetary Policy Committee will sit on its hands next week when it sets interest rates for the last time this year.
If, as governor Andrew Bailey says, the Bank is data-driven, it has little choice but to surprise the markets and cut rates by at least a quarter-of-a-percentage point.
The momentum behind the economy coming into the summer has been frittered away. Output slipped by 0.1 per cent in October for the second month in a row. The latest data shows construction, consumer services and manufacturing all heading in the wrong direction.
One doesn’t want to be too hard on Rachel Reeves and the Labour Government. The October growth figures pre-date the £40billion tax-raising Budget, which has staggered Labour-supporting business leaders.
Prospects have been undermined by the withering attacks on the Tory inheritance. Reeves’ assertion of the worst economic legacy since the Second World War was as curiously misleading as her CV. Starmer couldn’t resist joining in the doomster prognostications, standing in the Downing Street rose garden in the summer declaring things would get worse before getting better, and warning of a tough Budget.
This was a self-fulfilling prophecy. When Labour delivered its misery forecast, growth was well established and inflation under control. Preparing the ground for a tax-raising Budget may have seemed clever, and heaping criticism on its predecessors acceptable. The difficulty is that it frightened the horses.
Decision time: Bank boss Andrew Bailey
Business and consumer confidence took a hit, new orders dried up and the jobs market tightened. Deputy Prime Minister Angela Rayner’s planning reforms might possibly unleash the infrastructure and housing revolution promised. But even some ministers – Health Secretary Wes Streeting comes to mind – seem unsure the 1.5m target for new homes in this Parliament can be reached.
The Budget may have eased the uncertainties created by the rhetoric, but will have done nothing to make commerce feel better. All that has been heard since the Budget is that the National Insurance rise has been calamitous.
Reeves argued before the CBI that there was no alternative.
There were several. It wouldn’t have been popular with motorists, but it would have chimed with the green rhetoric, if fuel duty had not been frozen. I say that as someone with a gas-guzzling car!
The Bank’s minutes invariably remind us that its duty is to adhere to the inflation target of 2 per cent We know that in the post-Covid era this was forgotten, and the Bank paid the price in terms of reputation. The substantial tightening of fiscal policy requires a monetary response if it is to avoid an unnecessary recession, and for the housing market not to be derailed by high borrowing costs.
Waiting will cost jobs and prosperity.
Mail shock
How sad that for the second year in a row, Royal Mail has been fined by regulator Ofcom for failing to meet delivery goals. The performance in the last financial year was appalling with just 74.7 per cent of first-class letters delivered next day. Second class did better with 92.7 per cent arriving within three days against a 98.5 per cent target.
The outcomes are disgraceful and speak to poor management, lack of efficiency and lousy labour relations. Letter post is on a slippery slope downwards, which should make it easier to meet targets. Volumes have declined from 20billion letters a year to 7billion and are heading to 4billion.
None of this makes the prospect of ownership by ‘Czech Sphinx’ Daniel Kretinsky alluring. Loading the company with debt and locking in uneconomic union deals can only lead to a worsening performance and less investment. Consumers deserve better. But foreign ownership will not deliver.
Bitter pill
Octogenarian Stefano Pessina was once considered the genius of the pharmacy. In 2019 he explored taking Walgreens Boots Alliance private with a $90billion (£72billion) valuation. Five years later, the group risks being buried beneath $36billion (£29billion) of debt, lease liabilities and legal claims over opioid prescriptions. A rescue bid at some $9billion (£7.1billion), by buyout group Sycamore, is on the cards.
Easy come, easy go.
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