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All those homeowners and business owners who wanted a June cut in the Bank of England’s base rate have been given new hope.
The message coming across the Atlantic is that US inflation is moderating and that the booming post-pandemic economy may be taking a breather.
Strictly speaking, the UK and the eurozone have no need to pay attention to US inflation, output and monetary policy.
But it’s impossible to ignore the sentiment in Washington and Wall Street.
One constraint on the Bank of England cutting the bank rate from 5.25 per cent to 5 per cent as early as next month has been the stubbornness of US prices.
It’s time to act: Governor Andrew Bailey has publicly argued that Britain does not have to move at the same pace as the United States.
Expectations that the key US federal funds rate would remain unchanged have kept the dollar strong.
A weakening of sterling against the dollar affects the cost of living in Britain because a large proportion of imports, particularly oil and natural gas, are priced in the US currency.
The latest US data shows a drop in overall consumer prices and core inflation (which excludes energy and food).
As pressures on the cost of living in the United States ease (the headline inflation rate fell to 3.4 percent in April from 3.5 percent in March), markets are betting that the U.S. central bank will cut its key interest rate range as early as September.
That should give central banks elsewhere room to maneuver.
Governor Andrew Bailey has argued that Britain does not have to move at the same pace as the United States on the grounds that our inflation is rooted in the supply side of the economy, particularly energy prices.
In the United States, the dominant factor has been strong consumer demand and a dynamic labor market as the recovery accelerated. There are other forces at play.
Monetary policy is not a precise art and Bailey was on the wrong side of history when prices soared in 2021 and kept interest rates too low for too long.
As former Federal Reserve Chairman Ben Bernanke pointed out in the House of Commons yesterday, the Bank’s predictions have been wrong because, in the recent past, it did not take into account factors such as energy subsidies.
The worry now is that the Monetary Policy Committee (MPC) that sets interest rates will get it wrong again and keep borrowing costs too high while energy costs plummet.
In doing so, they will have inflicted unnecessary pain on consumers and businesses, and damaged confidence and recovery. The MPC needs to end the indecision and reduce rates at next month’s meeting.
defend yourself
The London Stock Exchange Group (LSEG) has been in the spotlight in recent months.
Each exit from the FTSE 350 has been seen as a death blow and the failure to attract initial public offerings (IPOs), such as Arm Holdings, has been taken as a symbol of the City’s decline.
The IPO drought could end soon if Asian fast fashion star Shein follows computer maker Raspberry Pi into the market.
Unilever’s ice cream arm and De Beers sit backstage. It is a mistake to think of the LSEG as simply a stock market. There is much more than that.
It is a data powerhouse, operator of Europe’s largest derivatives clearinghouse, has fixed-interest and forex trading platforms, and is Bloomberg’s main rival on trading desks around the world.
Its status as a Square Mile mainstay was underlined when investors sold a £1.6bn stake in the group this week, ending Thomson Reuters’ shareholding. LSEG will remain a Thomson Reuters news client.
Surprisingly, the share sale was achieved at a premium, demonstrating both the attractiveness of LSEG shares and London’s liquidity. Way to go!
Nerves of steel
If BHP thought sleepy Anglo American would be easy meat, it miscalculated.
The top 50 investors and South African authorities have come to his defense.
Chairman Stuart Chambers and Anglo are determined to show some shock and awe.
The first asset to go will likely be the controversial but valuable steel coking coal operations at a decent price of up to £4.75bn.
That’s more than Royal Mail!