ALEX BRUMMER: Bank of England must bolster growth

Anyone expecting fireworks and respite from high borrowing costs at next week’s Bank of England interest rate meeting will probably be disappointed.

The battle against inflation is being won but market rates have moved against an early reduction in borrowing costs. The failure of the Federal Reserve to get a grip on producer and consumer prices in the United States will not encourage boldness.

An independent Bank does not have to move in lockstep with America, and makes its own decisions.

It is often forgotten that the governor, Andrew Bailey, although late to the game, was the first mover when it came to ending the era of super low interest rates in December 2021.

All the indicators of future consumer prices for the UK are moving in the right direction. The big rises in the cost of food have been halted, though there remain concerns about rainfall and flooding impacts on rapeseed oil and other crops.

Confidence: The critical thing for productivity, output and prosperity is to get behind an incipient upturn

Confidence: The critical thing for productivity, output and prosperity is to get behind an incipient upturn

Wage settlements, at the 5 per cent level since the start of 2024, have been moderating but there are worries about the 10 per cent jump in the minimum wage in April. The game changer is energy prices as they fall out of the consumer prices index.

Analysts at HSBC among others argue the headline rate could drop as low as 1.2 per cent in May.

There will be concern, as in the US, that the lower cost of living will be temporary and prices could zip up again.

Both fiscal policy and monetary creation have been more expansionary across the Atlantic than in Britain.

Forecasters are projecting a repetition of the three-way split seen at the February session of the Monetary Policy Committee when six members voted for hold, two for higher rates and one – the estimable LSE economist Swati Dhingra – opted for a cut. Britain swiftly emerged from the technical recession at the end of last year, which may, anyway, be eliminated by revisions to the data.

The critical thing for productivity, output and prosperity is to get behind an incipient upturn.

Monetary policy, high interest rates and unpicking quantitative easing (printing money), have long lead times.

The MPC should abandon its misplaced caution, deliver an immediate cut in the current 5.25 per cent bank rate and put muscle power behind recovery.

Italian job

Margherita Della Valle has been busy since taking the helm at Vodafone 14 months ago.

In quick succession, she has freed herself from Europe’s highly competitive southern tier of Spain and Italy.

The clean sale of the Italian unit to Swisscom for £6.8bn is something of a surprise amid speculation of a more complex Italian deal, which would require anti-trust approval.

Vodafone long ago gave up ambition to be Britain’s global mobile phone champion having allowed itself to be bullied by investors to pull out of a loss-making operation in Japan and a minority holding in the US. 

Short-termism triumphed over the more distant prospect of huge riches when the data revolution produced a new income streams. A sinking share price has led successive Voda bosses to sell their way out of trouble rather than going through the effort of turning around sub-octane assets.

The job now is to double down on the UK if regulators can be persuaded to sign off on the proposed merger with Three.

Della Valle must also re-boot a distinctly unimpressive German operation and make the most out of Africa.

Focus will help. But long-suffering shareholders, who have seen a legacy betrayed, should not count on a great turnabout.

Tech trust

Holders of Scottish Mortgage Investment Trust (SMIT) have had a dizzying ride. The Baillie Gifford fund grew to be Britain’s largest investment trust by making brave bets on Silicon Valley, delivering stupendous returns.

Keeping up the momentum is difficult, even though next generation tech such as Nvidia and Elon Musk’s Space X are in the portfolio. SMIT is seeking to tame the discount to asset value with a £1billion buyback.

Smart. But what happened to the spirit of adventure?


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