Lord Mervyn King: Ex-Bank of England governor urges interest rate caution
A former governor of the Bank of England has told Sky News that while it was too slow to turn off the stimulus taps after the COVID pandemic, its actions to tame inflation are now “in the right area.”
Lord Mervyn King, who presided over the Bank‘s response to the global financial crisis in 2008, was speaking as current policymakers prepare to meet ahead of the next interest rate decision on Thursday.
Financial markets and economists currently expect a 15th consecutive rise, by 0.25 percentage points, taking the rate to 5.5%, a 2007 high.
Lord King said it was not for him to judge whether that would be the correct decision, as he did not have access to the same data available to the rate-setting committee.
But he signalled such an increase would not be punitive given the dramatic upwards shift witnessed since December 2021.
“I don’t think it matters a great deal”, he said, “We’re in the right ballpark now”, hinting at support for a cautious trajectory in the face of a weakening economy.
Any hike would inflict more pain on borrowers including the minority of households still on mortgage deals that track the Bank’s interest rate, exacerbating the wider, and persistent, cost of living crisis.
The cost of new fixed rate deals has come down in recent weeks, from 2008 highs, in line with forecasts for a lower Bank rate peak than had been expected during the summer.
Nevertheless, the average two-year fixed residential mortgage rate still stands at 6.66%, according to the Moneyfacts website.
The average five-year deal also remains above 6%.
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The Bank’s monetary policy committee (MPC) is now widely predicted to pause for breath after the anticipated hike this week, in line with comments by governor Andrew Bailey earlier this month that the peak rate was close.
Another rise could be seen as justified by the rate-setters due to the fact that wages are continuing to rise at a record pace.
Data on Wednesday, released just before the MPC meeting begins, is tipped to show a tick upwards in the headline rate of inflation during August.
The Bank is facing a delicate balancing act in tackling inflationary pressures in the economy by cooling demand but trying to avert a dive towards recession, and an inevitable loss of employment, at the same time.
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‘Bank’s mistakes fuelled inflation’
It has faced criticism over its handling of the inflation problem and been accused of being too slow to turn off COVID-era stimulus when the pace of price growth accelerated as economies got back in gear after lockdowns.
Bank rate was not raised from its record low 0.1% until December 2021.
Lord King said not only the Bank of England but other major central banks were guilty of failing to raise rates quickly enough.
The Bank’s former chief economist Andy Haldane previously joined that chorus of criticism in an interview with Sky News, accusing the MPC of fuelling inflation at that time.
Mr Bailey admitted in May that there were “very big lessons to learn” for monetary policy in a world of big shocks – with the MPC forced to grapple a host of challenges from COVID lockdowns to the impact of Russia’s war in Ukraine in the space of just two years.
The Bank has announced a review of its staff forecasting model, led by former US Federal Reserve chair Ben Bernanke.
The new version of the ChatGPT AI chatbot has been unveiled and offers near-instant results across text, vision and audio, according to its maker.
OpenAI said it was much better at understanding visuals and sounds than previous versions.
It offers the prospect of real-time ‘conversations’ with the chatbot, including the ability to interrupt its answers.
The firm says it “accepts as input any combination of text, audio, and image and generates any combination of text, audio, and image outputs”.
GPT-4o is to be rolled out over the next few weeks amid a battle by tech firms to develop ever-more advanced artificial intelligence tools.
Monday’s announcement showed tasks such as real-time language translation; using its vision capability to solve a maths question on a piece of paper, and to guide a blind person around London.
GPT-4o can respond to audio in as little as 232 milliseconds, with an average of 320 milliseconds, which the company says is similar to human response time.
To try to ease concerns over bias, fairness and misinformation, the Microsoft-backed company says the new version has undergone extensive testing by 70 external experts.
It comes after Google earlier this year had a major PR blunder over images generated by its Gemini AI system.
GPT-4o model will be free, but premium ‘Plus’ users get a greater capacity limit for messages.
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Previous versions of the chatbot have caused unease in schools and universities due to some students using it to cheat by producing convincing essays.
When it launched two years ago, ChatGPT was said to be the fastest-ever app to reach 100 million active monthly users.
The announcement also stole a march on Google, which is expected to tomorrow show off its own new AI features at its annual developers’ conference.
Nadhim Zahawi, the former chancellor, is to be named as chairman of one of Britain’s biggest online retailers, days after confirming that he would step down from parliament at the next general election.
Sky News has learnt that Mr Zahawi is to be appointed non-executive chair of Very Group, the largest remaining part of the Barclay family’s business empire.
Sources said the appointment, which will see him replacing interim chair Aidan Barclay, would be announced on Monday.
His arrival at Very Group will come during a period of turbulence for the Barclay family, who own The Daily Telegraph but are unable to exert influence over it under a government order while its future ownership remains uncertain, subject to a forthcoming auction.
Mr Zahawi’s appointment at Very Group, first revealed by Sky News in March, is likely to prompt a search for fresh equity investment in the near term, as well as a broader review of its capital structure.
The company, which owns the Very and Littlewoods brands, is weighed down by debt, but has nearly 4.5 million customers and significant expansion targets.
Based in Liverpool, it sells electrical goods, homewares and fashion, backed by a large consumer finance arm.
It is said to have performed resiliently despite uncertainty over its ownership.
The company recently said it had secured £125m of new debt funding from Carlyle Global Credit and IMI, which the company has said is designed to support future growth.
Mr Zahawi, the MP for Stratford-on-Avon since 2010, had a brief stint as chancellor of the exchequer, while he also held ministerial posts at the Department of Health and Social Care – where he oversaw the vaccine rollout during the COVID pandemic – the Department for Business and as chancellor of the Duchy of Lancaster.
He was made Conservative Party chairman by Rishi Sunak but was dismissed for failing to disclose he was being investigated by HMRC and the National Crime Agency over a multi-million pound tax dispute related to the sale of shares in his polling firm YouGov while he was chancellor.
He said he had made a “careless and not deliberate” error after initially saying he had no knowledge of the investigation and had “paid all taxes”.
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February 2023 – Zahawi: Starmer grills Sunak
Mr Zahawi’s announcement last week that he would not stand again at the next election meant he joined the likes of Theresa May, the ex-prime minister, and former Conservative Party chairman Sir Brandon Lewis in deciding to leave parliament.
Prior to his political career, he was the founder of YouGov, while he is now a patron of the Adam Smith Institute, the economic thinktank.
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Mr Zahawi has been playing a role as an intermediary between the Barclay family and the Abu Dhabi-based investor IMI Investments since its interest in participating in a bid for The Daily Telegraph emerged last summer.
He had been tipped to chair the newspaper group if RedBird IMI, a vehicle fronted by former CNN president Jeff Zucker, had been successful in buying it.
However, a fierce backlash from Conservative parliamentarians prompted Downing Street to intervene and amend legislation to prohibit ownership of British newspaper titles by investors connected to a foreign state.
RedBird IMI is now finalising preparations to conduct a further auction of the Telegraph newspapers and The Spectator magazine.
The Barclays, who used to own London’s Ritz hotel, have already lost control of several of their corporate assets.
In February, Yodel Group, their parcel delivery business, narrowly averted insolvency when it was sold to a consortium backed by executives at Shift, a rival.
The parent company of ArrowXL, another delivery firm they own, had been forced into administration by HSBC, its principal lender.
Half of the £1.2bn loan that the Barclays took from RedBird IMI and IMI was secured against their media assets, with the bulk of the remainder said to have been secured against other assets including Very Group.
At various points in the last decade, the Telegraph proprietors have explored a sale of the online shopping business, having valued it at over £3bn.
Very Group and Mr Zahawi both declined to comment.
The major backer of Pinewood Studios is among the suitors vying to buy Village Hotels, one of Britain’s biggest mid-market hotel chains.
Sky News understands Aermont, which specialises in real estate-backed investments, submitted an offer last week for Village Hotels, which is owned by KSL Capital Partners.
City sources said KSL was seeking offers worth in the region of £850m or more.
A number of other parties are also understood to have tabled bids ahead of a deadline last week.
Blackstone, the giant private equity firm, is considering making an offer but has yet to do so, according to insiders.
The auction is being handled by bankers at Morgan Stanley.
It comes months after attempts to sell Center Parcs UK were called off, while a mooted sale of Travelodge has so far failed to result in a deal.
Village Hotels comprises a portfolio of more than 30 properties from Aberdeen to Bournemouth, with rooms available at budget prices.
Founded in 1995 as Village Urban Resorts, the hotels feature pub-style restaurants and gyms.
KSL was reported to have paid £485m for the business when it bought it in 2014 from De Vere Group.
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The Denver, Colorado-based buyout firm has also owned other UK hotel chains including Hotel du Vin and Malmaison.
Aermont and Blackstone declined to comment.
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