Inflation holding steady: now we need a rate cut in August, says MAGGIE PAGANO

Inflation remained stable during the year to June at 2 percent.

This is the second consecutive month in which the Bank of England’s inflation target has been met and it continues the downward trend of recent months.

Bolstered by the latest growth update from the International Monetary Fund, sterling rose to a 12-month high against the US dollar above $1.30.

A stronger pound will help reduce the cost of imports, thereby also easing pressure on prices.

Why then have the odds of an interest rate cut in August now been reduced on financial markets to just 35 percent?

Just last week, traders were betting there was a two-thirds chance of a cut, a decision that almost everyone had been predicting would come at the Bank’s monetary policy committee (MPC) meeting next month.

In fact, the sudden change in sentiment seems rather perverse now that inflation has fallen so sharply.

However, markets are sensing that MPC hawks are still convinced that conditions are not ripe for monetary policy easing.

This is because the Bank is still concerned – some might say obsessed – by strong wage growth and higher prices in the services sector.

It’s already been dubbed the “Taylor Swift effect” due to the huge increase in hotel room prices following the pop star’s recent UK tour.

This is likely to have a temporary impact. As with the fate of most pop stars, fortunes can fall as quickly as they rise.

Instead, MPC members should take a closer look at the devastating impact that the rise in interest rates to 5.25 per cent has had on households and businesses over the past 18 months.

The latest figures from the Office for National Statistics for June show mortgage interest payments rose 31 per cent year-on-year.

This is a staggering figure that will affect almost all of the 8.5 million homeowners who opt for fixed-rate mortgages. This impact has had – and will continue to have due to the time lag – a huge effect on discretionary spending.

The next data the MPC should look at more closely are labour market surveys which show a rapid rise in unemployment and a sharp drop in hiring in June.

Three of the UK’s largest recruiters reported in their recent business updates that the outlook is bleak.

That is enough evidence to persuade the MPC to keep calm and opt for an interest rate cut in August.

China pivot

The top job in European banking has gone to Georges Elhedery, a Lebanese-born engineer who graduated from one of France’s grandes écoles and who likes to jog 10 kilometres before going to work.

He also speaks Mandarin, perfect for his new role as CEO of HSBC.

Experts say the 50-year-old was the obvious choice: a high achiever who understands the ins and outs of trading as well as the more grounded world of regulation and geopolitics.

Elhedery has worked at HSBC for 19 years, rising through the ranks and holding some of the bank’s most senior roles, from the Middle East to Africa.

He was appointed as much for his political savvy and keen diplomatic skills as for his banking prowess, a crucial trait for the HSBC boss at a time when his dealings with some troubled Asian investors and relations between the West and China remain strained.

It is also an interesting appointment from a personal point of view: just a few years ago, Elhedery took a six-month sabbatical to spend more time with his family.

It proves that having enough confidence to spend time outside the office is worth it.

Body shop

Mike Jatania is hoping to take on one of the toughest jobs in UK retail: bringing The Body Shop back to life.

Known as Britain’s cosmetics king, Jatania is one of the country’s richest Asian businessmen and has such a keen eye for fragrance that he collects them.

He sold his Lornamead business, which included Yardley and Woods of Windsor, for £155m and now runs Aurea, owners of Herbivore Botanicals, a plant-based cosmetics company, and other brands.

If anyone can solve Body Shop’s problems (and there are too many competing smells), that person may be Jatania.