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As a former member of the Bank of England, it should come as no surprise that Rachel Reeves held her first meeting with Andrew Bailey while the embers of the election campaign were still smoldering.
The new Chancellor has been noncommittal about her intentions for the Bank and fiscal policy. Her focus has been on housing and growth.
When Gordon Brown arrived at the Treasury in 1997, he wasted no time in freeing the Bank of England from government and carrying out a raid on pension funds, something that still stings today.
Caution is the motto for Reeves, who wants nothing to do with instability.
She is calling for a swift audit of public finances and the economy before the House of Commons closes its doors for the summer.
Autumn Budget: New Chancellor of the Exchequer Rachel Reeves has been coy about her intentions for the Bank and fiscal policy
She is giving the Office for Budget Responsibility the time it needs to evaluate any plans she may have ahead of the early fall budget.
As for the Bank, it proposes leaving the current agreements with the Treasury unchanged.
This means that thoughts that it might end the practice of paying commercial banks the full 5.25 per cent bank rate on overnight deposits have been dismissed.
Reeves’s caution is understandable. The last thing he needs, as he pursues a growth agenda, is a row with the bond vigilantes who brought down Liz Truss.
The main focus for bond markets at the moment is France, amid a prolonged period of political wrangling and turmoil following the weekend’s legislative elections.
Rating agencies can still speak their minds and bond markets remain nervous. The prospect of an unhinged, high-spending, low-tax Marine Le Pen government at the helm of the National Rally has been elusive.
The most Keir Starmer and Reeves can hope for to restore consumer and housing market confidence is an early rate cut from the Bank of England. Voting and attitudes on the rate-setting Monetary Policy Committee (MPC) have been moving in that direction, but there are still holdouts.
Economic guru Jonathan Haskel, who will attend his final session in August, is not yet ready to join those in favour of tapering.
He argues that even though headline inflation has come down to 2 percent, price and wage shocks mean that maintaining the target may be difficult.
Haskel’s departure gives Reeves the opportunity to make changes at the MPC. His past suggests he would like to see a greater diversity of backgrounds.
That could mean better representation of what Labour likes to call “working people” – industry and financial market players. The latter would have to trade wealth for public service.
Reeves’ mandatory targets for housing construction may help growth, but nothing would restore confidence in building and homeownership faster than a rate cut.
Lowering interest rates for businesses, consumers and people who have or want to get mortgages would provide an early boost to the outlook.
Taking the bubbling
If Labour wants to begin rebuilding Britain’s equity culture, it cannot afford to stand by as London’s stock markets are hollowed out.
The latest company to give up is soft drinks leader Britvic, which is doing well as a standalone company by taking advantage of opportunities in soft drinks and expanding into emerging markets such as Brazil.
There are few public interest arguments that can be made against Carlsberg’s £3.3bn offer. The deal is not about Czech billionaire Daniel Kretinsky swallowing up International Distributions Services, the owner of Royal Mail.
Share price reactions tell their own story. Britvic shares are up by a reported 35 percent premium.
If we remove the “London discount”, Britvic and its growth potential are sold at a low price.
Brokers such as Peel Hunt believe there is scope for a better offer. The sale of Britvic is another example of a lack of will on the part of a board.
Carlsberg shares are also up, despite the brewer cancelling a share buyback. The Danish group, seeking to burnish its reputation as a long-term player in Britain, is promising shareholders 100 million pounds in cost cuts.
There’s no telling where the axe will fall, but Britvic and Marston’s, which sold its minority brewing stake to Carlsberg in a separate deal, should brace for potential pain.
Losing control of corporate destiny is rarely good for UK businesses.
Money for the elections
