Mini-budget ‘complicated’ Bank of England’s battle to bring down inflation, says IMF chief economist
The chancellor’s mini-budget “complicated matters” for the Bank of England as it battled to bring down inflation, the International Monetary Fund’s chief economist has told Sky News.
In an interview at the IMF’s annual meetings in Washington, Pierre-Olivier Gourinchas warned the coming years would “not be very pleasant” for the global economy.
He also said the tax cuts announced by Kwasi Kwarteng late last month threatened to cause “problems” for the UK economy, coming as they did when the Bank was attempting to raise interest rates.
“When the mini-budget was announced at the end of September, there was a concern on our side,” he said.
“While the impulse to protect households and businesses and try to stimulate growth… are great objectives that we would very much support, at the same time, there was the sense that the budget, as it was announced, was suggesting a very stimulative effect in the short run, and something that would have complicated matters for the Bank of England’s efforts to bring down inflation,” Mr Gourinchas added.
He said the IMF welcomed the fact that the chancellor will provide further plans in his medium-term fiscal plan later this month, and that it would assess them when they arrived.
However, the comments come amid a fierce debate about whether the mini-budget was or was not responsible for some of the disturbances in money markets in the ensuing weeks.
Business Secretary Jacob Rees-Mogg suggested earlier on Wednesday that blaming the mini-budget was speculation.
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Mr Gourinchas indicated that the disturbances in UK markets, which have caused problems for some pension schemes reliant on derivative strategies which can no longer function following sharp increases in interest rates, were part of a broader pattern.
“As interest rates rise, you see that segments of the financial markets may not be optimised for higher rates, so they need to unwind trades, they need to reposition themselves. This can sometimes come with some liquidity pressures, some financial vulnerabilities,” he said.
However, for the world economy as well as the UK, Mr Gourinchas warned that in economic terms, the “worst was yet to come”.
“Inflation is still going to be high [next year],” he said. “We’re going to be in an environment where people are going to feel more pain in terms of their incomes and in terms of growth – we’re seeing a third of world output in contraction territory – two consecutive quarters of negative growth.
“Inflation will not be back to target but growth will be below, so we will hear people saying, ‘Oh, this is not working. We need to do something else. We need to change the course of monetary policy.'”
Mr Gourinchas continued: “And this is why we’re saying: no, wait a minute. We know this is going to take some time. We know this is not going to be very pleasant, but central banks need to get on with this and bring inflation down.”
Shares in The Magnum Ice Cream Company (TMICC) have fallen slightly on debut after the completion of its spin-off from Unilever amid a continuing civil war with one of its best-known brands.
Shares in the Netherlands-based company are trading for the first time following the demerger.
It creates the world’s biggest ice cream company, controlling around one fifth of the global market.
Primary Magnum shares, in Amsterdam, opened at €12.20 – down on the €12.80 reference price set by the EuroNext exchange, though they later settled just above that level, implying a market value of €7.9bn – just below £7bn.
The company is also listed in London and New York.
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Unilever stock was down 3.1% on the FTSE 100 in the wake of the spin off.
The demerger allows London-headquartered Unilever to concentrate on its wider stable of consumer brands, including Marmite, Dove soap and Domestos.
The decision to hive off the ice cream division, made in early 2024, gives a greater focus on a market that is tipped to grow by up to 4% each year until 2029.
Ben & Jerry’s accounts for a greater volume of group revenue now under TMICC. Pic: Reuters
But it has been dogged by a long-running spat with the co-founders of Ben & Jerry’s, which now falls under the TMICC umbrella and accounts for 14% of group revenue.
Unilever bought the US brand in 2000, but the relationship has been sour since, despite the creation of an independent board at that time aimed at protecting the brand’s social mission.
The most high-profile spat came in 2021 when Ben & Jerry’s took the decision not to sell ice cream in Israeli-occupied Palestinian territories on the grounds that sales would be “inconsistent” with its values.
Unilever responded by selling the business to its licensee in Israel.
A series of rows have followed akin to a tug of war, with Magnum refusing repeated demands by the co-founders of Ben & Jerry’s to sell the brand back.
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Magnum and Unilever argue its mission has strayed beyond what was acceptable back in 2000, with the brand evolving into one-sided advocacy on polarising topics that risk reputational and business damage.
TMICC is currently trying to remove the chair of Ben & Jerry’s independent board.
It said last month that Anuradha Mittal “no longer meets the criteria” to serve after internal investigations.
An audit of the separate Ben & Jerry’s Foundation, where she is also a trustee, found deficiencies in financial controls and governance. Magnum said the charitable arm risked having funding removed unless the alleged problems were addressed.
The Reuters news agency has since reported that Ms Mittal has no plans to quit her roles, and accused Magnum of attempts to “discredit” her and undermine the authority of the independent board.
Magnum boss Peter ter Kulve said on Monday: “Today is a proud milestone for everyone associated with TMICC. We became the global leader in ice cream as part of the Unilever family. Now, as an independent listed company, we will be more agile, more focused, and more ambitious than ever.”
Commenting on the demerger, Hargreaves Lansdown equity analyst Aarin Chiekrie said: “TMICC is already free cash flow positive, and profitable in its own right. The balance sheet is in decent shape, but dividends are off the cards until 2027 as the group finds its footing as a standalone business.
“That could cause some downward pressure on the share price in the near term, as dividend-focussed investment funds that hold Unilever will be handed TMICC shares, the latter of which they may be forced to sell to abide by their investment mandate.”
Donald Trump has said he will be “involved” in the decision on whether Netflix should be allowed to buy Warner Bros, as the $72bn (£54bn) deal attracts a media industry backlash.
The US president acknowledged in remarks to reporters there “could be a problem”, acknowledging concerns over the streaming giant’s market dominance.
Crucially, he did not say where he stood on the issue.
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It was revealed on Friday that Netflix, already the world’s biggest streaming service by market share, had agreed to buy Warner Bros Discovery’s TV, film studios and HBO Max streaming division.
The deal aims to complete late next year after the Discovery element of the business, mainly legacy TV channels showing cartoons, news and sport, has been spun off.
But the deal has attracted cross-party criticism on competition grounds, and there is also opposition in Hollywood.
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The Writers Guild of America said: “The world’s largest streaming company swallowing one of its biggest competitors is what antitrust laws were designed to prevent.
“The outcome would eliminate jobs, push down wages, worsen conditions for all entertainment workers, raise prices for consumers, and reduce the volume and diversity of content for all viewers.”
File pic: Reuters
Republican Senator, Roger Marshall, said in a statement: “Netflix’s attempt to buy Warner Bros would be the largest media takeover in history – and it raises serious red flags for consumers, creators, movie theaters, and local businesses alike.
“One company should not have full vertical control of the content and the distribution pipeline that delivers it. And combining two of the largest streaming platforms is a textbook horizontal Antitrust problem.
“Prices, choice, and creative freedom are at stake. Regulators need to take a hard look at this deal, and realize how harmful it would be for consumers and Western society.”
Paramount Skydance and Comcast, the parent company of Sky News, were two other bidders in the auction process that preceded the announcement.
The Reuters news agency, citing information from sources, said their bids were rejected in favour of Netflix for different reasons.
Paramount’s was seen as having funding concerns, they said, while Comcast’s was deemed not to offer so many earlier benefits.
Paramount is run by David Ellison, the son of the Oracle tech billionaire Larry Ellison, who is a close ally of Mr Trump.
The president said of the Netflix deal’s path to regulatory clearance: “I’ll be involved in that decision”.
On the likely opposition to the deal. he added: “That’s going to be for some economists to tell. But it is a big market share. There’s no question it could be a problem.”
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