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Is the Bank of England protesting too much? The minutes of the June pre-election session, in which the bank rate remained at 5.25 per cent, unheroically note that “the timing of the general election was not relevant to their decision”.
Reading the minutes of the Monetary Policy Committee (MPC), one might be left with the clear impression that the rules have been moved.
Now that headline inflation is hovering near 2 percent, there is a lot of nonsense about meeting the target “sustainably” in the medium term.
Speaking in Washington at the Institute of International Finance in April, Governor Andrew Bailey argued that it was possible for Britain and Europe to diverge from the United States on interest rate policy.
Cautious: the Bank of England has kept its base rate at 5.25%, insisting that “the timing of the general election was not relevant to its decision”
Inflation in Europe has been largely supply-driven, a result of the pandemic and Russia’s war against Ukraine.
Once the energy price distortion disappeared on the horizon, the way was open to reduce the cost of borrowing. In the United States, inflation fears remained high because strong consumer and business demand was driving up prices for goods and services.
Bailey’s judgment proved correct. Christine Lagarde of the European Central Bank ignored the upcoming European parliamentary elections and cut rates by a quarter of a percentage point, to 4.25 percent, on June 12.
The Swiss National Bank is on a mission to reduce borrowing costs and yesterday cut them by another quarter point to 1.25 percent.
There is very little in the minutes to suggest that the interest rate-setting MPC would be jeopardizing the battle already won against inflation if it had reduced borrowing costs in the June session.
He admits that much of the increase in the price of services is due to managed actions, which are carried out once a year, such as the increase in telecommunications costs.
Regarding the labor market, the dynamism of the settlements is partly due to the increase in the living wage at the national level. That, to use a phrase from Keir Starmer, helps workers.
Furthermore, as the Bank acknowledges, high rates are making people skeptical about making major purchases.
That explains why recent retail sales data has been weak. All this suggests that there was no reason for the Bank not to act now and help families struggling with mortgages and companies wanting to invest.
Waiting until August to move the dial is another blunder by the Bank that adds to the delay in raising rates as inflation soared.
A cut in August – which is the way the MPC, including Bailey, is moving – would be excellent. The delay is inexcusable.
bank withdrawal
After spending years dumping companies including fintech superstar Worldpay, NatWest is showing some boldness.
It will take on Sainsbury’s banking business in a deal that adds £2.5bn to its assets.
The most interesting parts of Sainsbury’s finances, such as insurance and travel money, remain where they are.
The transaction means the trend of retailers becoming banks has largely died out. M&S handed over the keys to HSBC two decades ago. Tesco offloaded its bank to Barclays.
And now we have the agreement with Sainsbury. As good as it is to see new chief executive Paul Thwaite making a good impression, his claim that NatWest has a “track record of successful integration” will surprise some.
In its previous incarnation as Royal Bank of Scotland, the bank notoriously executed one of the worst deals in UK financial history when it bought ABN Amro.
In the eyes of former chief executive Fred Goodwin, Sainsbury’s Bank wouldn’t even count as a mercy killing.
As helpful as it may be for NatWest to increase its credit card and unsecured lending operations, the deal does not mark any change in direction.
Banks need to think more broadly about what they do. More, not less, customer services offered through sold-out branches would be a great start.
czech question
Royal Mail is as imaginative as ever with its latest beautifully designed stamps honoring the Red Arrows acrobatic display team.
As an enthusiastic philatelist, the idea of the next series of stamps featuring Czech Air Force aircraft and the profile of Daniel Kretinsky does not inspire me.
Maybe instead the Prague skyline, Charles Bridge and Wenceslas Square.
