Table of Contents
Britain has long looked across the Atlantic for guidance on interest rates.
Of all the European economies, the United Kingdom, with its free capitalism, its open borders and its financial sector dominated by American giants, finds it difficult to separate itself from its American cousins.
There is a current view, shared by Bank of England Governor Andrew Bailey, that the UK and Europe are on different paths to the US.
Inflation in the United States is driven by demand. The Federal Reserve, the central bank of the United States, had no choice but to keep its key interest rate in the range of 5.25 percent to 5.5 percent last night, given the stubbornness of inflation and the economic strength with Robust real estate and labor markets.
In contrast, cost-of-living pressures are easing in Britain as supply constraints, caused by the war in Ukraine, offer room to lower interest rates, which would underpin production in the UK.
Decision time: There is a current view, shared by Bank of England Governor Andrew Bailey (pictured), that the UK and Europe are on different paths to the US.
The message coming from the UK property sector is mixed. The latest data from Nationwide shows prices fell 0.4 per cent in April after a 0.2 per cent drop in March.
This, despite data this week from the Bank of England showing healthy mortgage approvals.
The latest economic forecasts from the Organization for Economic Cooperation and Development underline the need to reduce the Bank’s interest rate.
Clare Lombardelli, chief economist at the Bank of England, has reduced the Paris-based group’s projections for the United Kingdom to slow growth of 0.4 percent this year and 1 percent in 2025.
He is not as confident as Bailey that UK prices are falling. Key service providers such as BT and NatWest continue to hit consumers with increases.
The risk of Britain breaking away from the United States on rates is that sterling, currently trading at $1.25, will take a hit. A weak pound raises the cost of imports, including energy.
Allowing the economy to stagnate rather than supporting the buoyant services sectors and construction recovery should not be an option.
The Bank should lower its key rate from 5.25 percent next Thursday. Imagine what a confidence booster that would be.
Harmful substances
Visitors to the United States quickly become accustomed to seeing the names of the two big British pharmaceutical companies, AstraZeneca and GlaxoSmithKline (GSK), on television screens as they promote world-leading drugs and vaccines, replete with dire warnings about side effects.
But cutting-edge treatments come with endless regulatory responsibilities and litigation risks.
GSK’s resurgence as an independent company under Emma Walmsley continues apace, with the group benefiting from strong demand for its vaccines for shingles and respiratory diseases, as well as a new compound for bone marrow cancer. .
The company has significantly raised its sales and profit projections.
However, on his earnings call, Walmsley found himself defending himself against accusations from the competition regulator, the Federal Trade Commission, that GSK is keeping prices for brand-name drugs too high.
Whatever the rights and wrongs, they will cast a shadow on an election year in the United States. More troubling is the outcome of a Delaware court hearing before a judge in which up to 72,000 complainants alleged that the stomach drug Zantac increased cancer risks.
GSK has so far successfully resisted the allegations. But the cases remain a shadow over their actions and can encourage settlements to avoid the dangers of unforced errors that come with jury trials.
At home and away
Boss pay is an increasingly toxic issue for British healthcare investors.
GSK’s ‘well-paid’ Walmsley and AstraZeneca’s Pascal Soriot have faced criticism for inflated deals.
A rebellion at Smith & Nephew (S&N), with 43 per cent of shareholders refusing to approve a £9.4m package for Texas-based boss Deepak Nath, is even more acute.
Losing chief executives over pay disputes has become a bad habit at S&N, which has had four in five years.
Few deserve that amount. But it would be embarrassing if a UK stalwart used a poorly designed rewards package as an excuse to defend Wall Street.