Connect with us

Published

on

Bank of England governor Andrew Bailey has admitted he is “very uneasy” about high inflation – but dismissed the idea that Britain could face a 1970s style wage-price spiral.

Mr Bailey was being questioned by MPs over the Bank’s latest decision to leave interest rates on hold at a record low of 0.1% – surprising investors – despite inflation being higher than its 2% target and on course to top 5% in coming months.

Speaking to the Commons Treasury select committee, he defended the decision not to act by saying he wanted to first see an answer to the “puzzle” of what has happened to the jobs market after the furlough scheme ended in September.

Please use Chrome browser for a more accessible video player


‘Interest rate rise wouldn’t tackle supply issues’

Mr Bailey said: “I am very uneasy about the inflation situation.

“It is not of course where we want it to be, to have inflation above target.”

Pressed on the danger of a wage-price spiral – where workers ask for more money to cover rising inflation and those demands result in higher prices, which then in turn prompts further wage demands, Mr Bailey said: “The structure of the economy, the structure of the labour market is very different to the 1970s.

“I tend to play down the comparison with the 1970s.

More from Business

“Of course the inflation story in the 1970s was much worse, and persistent throughout the decade.”

Mr Bailey said one reason was that, even though some employers were having to pay more to hire new staff “that doesn’t necessarily translate at the moment into paying their existing staff more”.

Please use Chrome browser for a more accessible video player


‘Supply shocks’ caused by COVID and Brexit

He added: “We are a very long way from the 1970s.”

Interest rates were slashed to 0.1% early on during the pandemic in order to try to help the UK weather the coronavirus crisis which saw much of Britain’s economic activity suspended.

But as the economy recovers and with inflation surging, there is pressure to increase rates – a lever traditionally seen as a tool by which central banks can keep a lid on price rises.

The Bank governor reiterated that the recent decision on interest rates was a “very close call”.

On the one hand, he said, Britain’s economic recovery was starting to slow partly due to supply chain strains dragging on growth.

But at the same time, the energy market and global goods prices were pushing up inflation.

On today’s show, we look at how renewables could keep energy costs down this winter.
Image:
Higher energy prices are among the factors behind rising inflation

Rehearsing his previously-stated rationale for not hiking interest rates, Mr Bailey said that doing so was not “going to supply more gas or supply more computer chips”.

He added that by the time of the Bank’s next interest rate meeting it would know more about what had happened to the one million jobs that were still on furlough when the scheme ended.

Mr Bailey was speaking a day ahead of official labour market figures which will for the first time give an indication of the impact of the withdrawal of that support on UK payrolls.

Inflation figures out on Wednesday, expected to show the rate of price increases at their highest level in nearly a decade, will also be closely watched by the Bank.

Michael Saunders, a member of the BoE’s rate-setting committee who did vote for a rate rise earlier this month, backed the governor in agreeing that there was “no risk of a wage-price spiral”.

But Mr Saunders told MPs his fear about not increasing interest rates now was that it would mean when they do eventually have to go up, the increase may have to be faster and potentially higher.

Continue Reading

Business

Italian restaurant chain Gusto on brink of administration

Published

on

By

Italian restaurant chain Gusto on brink of administration

The intense financial pressure facing Britain’s casual dining sector will be underlined this week when Gusto, the Italian restaurant chain, falls into administration.

Sky News has learnt that Interpath Advisory is preparing a pre-pack insolvency of Gusto, which trades from 13 sites.

Sources said that a vehicle set up by Cherry Equity Partners, the owner of Latin American restaurant concept Cabana, was the likely buyer.

Money latest: Supermarkets report further food price hikes

It is expected to take over most of Gusto’s sites although some job losses are likely.

A deal could be announced in the coming days, according to insiders.

The collapse of Gusto, which is backed by private equity investor Palatine, follows a string of increasingly heated warnings from hospitality executives about the impact of tax rises on the sector.

More from Money

Kate Nicholls, who chairs UK Hospitality, said this month that the industry faced a jobs bloodbath amid growing financial pressure on operators.

This week, Sky News reported that the restaurant industry veteran David Page, a former boss of PizzaExpress, was raising £10m to take advantage of cut-price acquisition opportunities in casual dining.

Mr Page is planning to become executive chairman of London-listed Tasty, which owns Wildwood and dim t, and rename it Bow Street Group.

A placing of shares in the company is likely to be completed this week.

Interpath declined to comment on the Gusto process.

Continue Reading

Business

Tide turns as TPG leads talks to lead digital bank fundraising

Published

on

By

Tide turns as TPG leads talks to lead digital bank fundraising

TPG, the American private equity giant, is in advanced talks to take a stake in Tide, the British-based digital banking services platform.

Sky News has learnt that TPG, which manages more than $250bn in assets, is discussing acquiring a significant shareholding in the company.

Sources said that Tide’s existing investors were expected to sell shares to TPG, while a separate deal would involve another existing shareholder in the company acquiring newly issued shares.

The two transactions may be conducted at different valuations, although both are likely to see the company valued at at least $1bn, the sources added.

The size of TPG’s prospective stake in Tide was unclear on Monday.

Earlier this year, Sky News reported that Tide had been negotiating the terms of an investment from Apis Partners, a prolific investor in the fintech sector, although it was unclear whether this would now proceed.

Tide has roughly 650,000 SME customers in both Britain and India, with the latter market expanding at a faster rate.

More from Money

Morgan Stanley, the Wall Street bank, has been advising Tide on its fundraising.

Tide was founded in 2015 by George Bevis and Errol Damelin, before launching two years later.

It describes itself as the leading business financial platform in the UK, offering business accounts and related banking services.

The company also provides its SME ‘members’ in the UK a set of connected administrative solutions from invoicing to accounting.

It now boasts a roughly 11% SME banking market share in Britain.

Read more:
Wise set for resounding win
TalkTalk’s £100m windfall
US could lose, even if Trumps wins

Tide, which employs about 2,000 people, also launched in Germany last May.

The company’s investors include Apax Partners, Augmentum Fintech and LocalGlobe.

Chaired by the City grandee Sir Donald Brydon, Tide declined to comment on Monday.

TPG also declined to comment.

Continue Reading

Business

Trump trade war could still see America come off worse

Published

on

By

Trump trade war could still see America come off worse

It is a trade deal that will “rebalance, but enable trade on both sides,” said Ursula von der Leyen after the EU and US struck a trade deal in Scotland.

It was not the most emphatic declaration by the president of the European Commission.

The trading partnership between two of the biggest markets in the world is in significantly worse shape than it was before Donald Trump was elected, but this deal is better than nothing.

As part of the agreement, European exports to the US will be hit with a 15% tariff. That’s better than the 30% the bloc was threatened with but it is a world away from the type of open and free trade European leaders would like. The EU had offered tariff free trade to the US just weeks before the deal was announced.

Money latest: What new EU travel rules mean for you

Instead, it has accepted a 15% tariff and agreed to ramp up its energy purchases from the US.

The EU tariff on US imports will remain close to zero but Europe did get some important exemptions – on aviation, critical raw materials, some chemicals and some medical equipment. That being said, the bloc did not achieve a breakthrough on steel, aluminium or copper, which are still facing a 50% tariff. It means the average tariff on EU exports to the US will now rise from 1.2 % last year to 17%.

More from Money

There is also confusion over the status of pharmaceuticals – an important industry to Europe. Products like Ozempic, which is made in Denmark, have flooded into the US market in recent years and Donald Trump was threatening tariffs as high as 50% on the sector.

Please use Chrome browser for a more accessible video player

US and EU agree trade deal

It appears that pharmaceuticals will fall under the 15% bracket, even though President Trump contradicted official announcements by suggesting a deal had not yet been made on the industry. The risk is that the implementation of the deal could be beset with differences of interpretation, as has been the case with the Japan deal that Trump struck last week.

It also risks fracturing solidarity between EU states, all of which have different strategic industries that rely on the US to differing degrees. Germany’s BDI federation of industrial groups said: “Even a 15% tariff rate will have immense negative effects on export-oriented German industry.”

The VCI chemical trade association said rates were still “too high”. For German carmakers, including Mercedes and BMW, there was some reprieve from the crippling 27.5% tariff imposed by Trump. The industry is Europe’s top exporter to the US but the German trade body, the VDA, warned that a 15% rate would “cost the German automotive industry billions annually”.

Please use Chrome browser for a more accessible video player

Who’s the winner in the US-EU trade deal?

Meanwhile, François Bayrou, the French Prime Minister, described the agreement as a “dark day” for the union, “when an alliance of free peoples, gathered to affirm their values and defend their interests, resolves to submission.”

While the deal has divided the bloc, the greater certainty it delivers is not to be snubbed at.

Markets bounced on the news, even though the deal will ultimately harm economic growth.

Please use Chrome browser for a more accessible video player

‘Millions’ of EU jobs were in firing line

Analysts at Oxford Economics said: “We don’t plan material changes to our eurozone baseline forecast of 1.1% GDP growth this year and 0.8% in 2026 in response to the EU-US trade deal.

“While the effective tariff rate will end up at around 15%, a few percentage points higher than in our baseline, lower uncertainty and no EU retaliation are partial offsets.”

However, economists at Capital Economics said the economic outlook had now deteriorated, with growth in the bloc likely to drop by 0.2%. Germany and Ireland could be the hardest hit.

While the US appears to be the obvious winner in this negotiation, uncertainty still hangs over the US economy.

Trump has not achieved his goal of “90 deals in 90 days” and, in the end, American consumers could still bear the cost through higher prices.

That of course depends on how businesses share the burden of those higher costs, with the latest data suggesting that inflation is yet to rip through the US economy. While Europe determined on Sunday that a bad deal is better than no deal, some fear that the worst is yet to come for the Americans.

Continue Reading

Trending