ALEX BRUMMER: Poor time for the Bank of England to tighten policy


Predictably, Omicron is delivering a market setback. Projections of a robust global recovery made by the International Monetary Fund of 5.9 per cent this year, and 4.9 per cent in 2022, are retreating into the distance.

Once again, high intellectual jinks for the world’s economic and corporate elites at Davos are being scrapped.

More often than not, markets end the year with a rally. This year, in the approach to Christmas, there is a slow drift down of equity markets, running at between 1 per cent and 2 per cent in latest trading. 

Rate hike: The Bank of England Monetary Policy Committee's effort to combat inflation and normalise bank rate with last week’s increase from 0.1% to 0.25% was ill-timed

Rate hike: The Bank of England Monetary Policy Committee’s effort to combat inflation and normalise bank rate with last week’s increase from 0.1% to 0.25% was ill-timed

Brent crude oil prices also came down by 3 per cent, which may prove no bad thing in the context of inflation prospects.

Travel and hospitality companies, big contributors to the UK’s service-led economy, are beating the retreat.

The Government guidance from a sector which contributed £58.3billion of gross added value to UK plc in 2019, the year before Covid-19, is sinking.

The sight of red-in-tooth-and-claw capitalists constantly asking for government hand-outs is dispiriting.

This is especially the case when some of the whingers, such as Hong Kong-owned Greene King, chose to put their fate in the hands of overseas investors. 

With much of the developing world still unvaccinated the potential, for new variants is an ever present threat. That is why policymakers should not have acted so precipitately.

Chancellor Rishi Sunak’s effort to paint himself as the guardian of fiscal responsibility by means of swingeing tax increases, including the 1.25 per cent National Insurance levy, looks misplaced.

Fixing social care was important but the direction chosen was imprudent. Britain post-Brexit has travelled as far as you can journey from low-tax Singapore.

As for the ‘unreliable boyfriends’ that dominate the Bank of England’s Monetary Policy Committee, their effort to combat inflation and normalise bank rate with last week’s increase from 0.1 per cent to 0.25 per cent was ill-timed. 

It is hard to believe that the architect of the increase was the same Andrew Bailey who moved so fleetly at the start of the UK pandemic in March 2020 to prevent scarring to the economy.

Bashing output with a rate hike at this delicate juncture is misplaced. The authorities have delivered a tax and interest double whammy. Contrary to IMF advice, inactivity would have been a virtue.

Dave’s returns

By enticing Dave Lewis into the chair of GSK’s new Consumer Healthcare company, for the less than lordly sum of £700,000, the pharma giant has played a blinder.

The former Tesco boss has the right CV when it comes to the task in hand of floating new £10billion revenues company and keeping toxic activist Elliott quiet.

In his previous life, Lewis ran global consumer products for Unilever. All will be critical to GSK’s new consumer outfit. At Tesco he gained insight and re-organised supply chains from the retailer’s perspective.

Putting former Tesco bosses in charge is fashionable, with Terry Leahy in the chair of Morrisons under private equity stewardship.

That doesn’t mean that Lewis’s leadership at Tesco was heroic. His departure mid-pandemic was not a good look especially as he carted off sackloads of cash including a £1.6million payoff for a few months’ work and £13million in accumulated share options. In his six years at the top his pay totalled £30million. 

In his determination to improve the group’s cash position he too easily sold out of lucrative markets in South Korea and Thailand, making the company ever more dependent on a starkly competitive UK where opportunities for expansion are limited. Then again, no one is perfect.

Flawed models

Remember the Brexit jobs exodus from London? PwC forecast in April 2016 that 100,000 finance jobs would flee to the eurozone. 

American consultancy Oliver Wyman, widely quoted by the Bank of England as the authority on the issue, projected 40,000 job losses.

Latest data from the EY tracker shows that in the end, in spite of the frantic effort to win EU banking licences and to re-establish asset management domiciles in Luxembourg, Dublin and elsewhere, just 7,400 job drifted overseas. Warnings from JP Morgan’s Jamie Dimon, about the slow drift to the Continent, proved false with investment bankers and traders opting to stay.

It has done them no harm since all the predictions are for a bumper bonus season when the final tally from a rambunctious trading year is totted up.

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