The Mansion House warnings from Gov. Andrew Bailey and Chancellor Jeremy Hunt about escalating wage deals were no accident.
Data showing the regular weekly pay rose 7.3 percent in the three months to May shows just how entrenched inflation has become.
Earlier this year, the wage data was largely interpreted as a hit to real incomes, purchasing power and the resilience of the economy. No more.
There is much debate about whether inflation is supplier driven, the result of companies increasing profit margins or wages chasing prices.
The UK seems affected by both. Even if headline consumer prices decline sharply as falling energy prices finally make a difference, core inflation minus fuel and food could remain flat.
Fighting inflation: The Bank of England’s monetary policy committee has made 13 consecutive increases to the base rate since March 2020 and it now stands at 5%
Is it the right answer for markets to continue to push bond yields higher and for the Bank of England to be determined to raise interest rates?
There are compelling reasons not to exaggerate the inner Paul Volcker. Circumstances today are very different from those in the United States in 1979 when Volcker took over the reins of the Federal Reserve.
The tool that crippled the US economy and ushered in the recession was a credit card surcharge that had such a dramatic impact that it had to be abandoned.
Credit card interest rates in Britain are so high (18.9 percent on a Halifax Mastercard) that raising official rates has little impact on spending patterns.
In fact, despite the outcry over the 6.66 percent two-year fixed-rate mortgage, described as the ‘devil’s number’ by a leading broker, no one should be overexcited.
Some 700,000 homes will see the end of their arrangement in 2023, but it is quite possible that if general prices fall, market rates will follow.
As a high street banker reminded me yesterday, the arguments for the two year solution are not very convincing since many people have longer solutions.
Post-Covid savings balances are not shrinking very fast and there is still a strong inclination to spend and visit airports or local restaurants.
Two dissident members of the Bank of England’s Monetary Policy Committee, LSE professors Silvana Tenreyro (who has now left) and Swati Dhingra, who voted against raising rates to 5 percent, argued that monetary policy it takes time to work.
Pushing the UK into an unnecessary recession, when what is needed is support for growth, is an unnecessary punishment.
natural order
At a time of geopolitical turmoil, the clash between Britain’s energy security requirements and the ambitions of the climate change lobby is illustrated by Centrica’s new US gas supply deal.
As Labour, the SNP and Just Stop Oil are in full swing, the British Gas owner reckons the extra supplies of liquefied natural gas (LNG) will ensure British retirees don’t freeze at home as the UK moves towards a carbon free economy.
Under an agreement signed with US producer Delfin Midstream, the UK will have access to one million tonnes of LNG a year for 15 years, transported from a terminal in Louisiana.
Among the consequences of taxing North Sea oil producers to nuggets, supported by Labour, and blocking future exploration licenses in the North Sea is that LNG will be shipped across the Atlantic at a large carbon footprint.
Centrica’s new £6.2bn contract is among a series of initiatives CEO Chris O’Shea is taking to secure supplies as he pushes full steam ahead on greener technologies, from installing water pumps heat and hydrogen production.
The idea that the UK can simply cut off the supply of natural gas, responsible for around 50 per cent of the UK’s needs, is naive.
There is also a business opportunity for Centrica with the possibility of shifting any excess LNG supplies to the mainland should there be surpluses in the UK.
Russia’s war in Ukraine and the price shock that followed illustrate not only the need for energy security, but also the potential harm to consumers and the economy.
Arms race
What a dilemma for do-gooder environmental, social and governance (ESG) investors who avoid defensive action.
Britain’s prime contractor, BAE Systems, is ramping up munitions production with a potential investment of £400m as Ukraine fends off Putin’s evil empire with its cavalier approach to civilian life.
Better NATO shells and the cause of freedom than Joe Biden’s aerial bombardment of the Kremlin and cluster bombs.
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