Interest rate cut is not far off – but there are complicating factors
How soon is too soon?
That’s the question exercising members of the Bank of England‘s monetary policy committee (MPC) at the moment. All nine members know that interest rates, currently at 5.25%, will have to be cut in the coming months.
After all, high interest rates represent a brake on the economy and it’s becoming clear that keeping the brake pedal down is causing economic pain.
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Unemployment is beginning to rise; the strength of consumer demand is dropping and, most of all, inflation is coming down too.
For Bank insiders, the fact that the rate at which the consumer price index is rising each year is about (at least according to their forecasts) to hit 2% is a mark of success.
Not long ago, as prices rose at the fastest rate in decades, many in the City wondered whether the Bank might have lost control of inflation – which it is supposed to keep as close as possible to 2%.
While the indicator’s fall is partly down to the volatility of energy prices (having been the main force lifting prices in recent years, they are now the main force depressing them), what gives the Bank’s policymakers hope is that while CPI inflation is expected to bounce back slightly in the coming months, their forecast suggests it will not exceed 3%.
The upshot is that inside the Bank there are some who are now whispering quietly that they might have succeeded – inflation might have been tamed.
But that brings us back to that question: if inflation is tamed then there’s no need to have interest rates so high, so how soon should they be cut?
Complicating factors is what’s happening on the other side of the Atlantic, where the Federal Reserve, America’s central bank, has committed something of a U-turn.
Higher US rates would tend to weigh on the pound, making imports bought in dollars more expensive. Pic: Reuters
Having guided investors and economists a few years ago that an interest rate cut was coming soon, the Fed chair, Jerome Powell, has more lately hinted that no cut was coming anytime soon.
And since America usually leads the way on interest rates, that raises an unnerving question: can the UK really begin cutting rates so long before the Federal Reserve?
The Bank’s internal assessment is quite simply that the British economy is in a very different place to America. The US is growing very strongly indeed, partly thanks to large federal spending programmes pumping cash into green tech and semiconductor manufacturing.
There is nothing analogous in the UK, whose economy is expected to grow by 0.9% over the next 12 months or so.
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That’s an upgrade on the previous 0.6% forecast, but is only a fraction of the 2%+ growth enjoyed in the US.
In the coming weeks, we’re expecting an unusually important set of economic numbers. Inflation data for April is expected to show a big fall, down to 2%. There are some jobs data and, of course, tomorrow we learn whether the UK has bounced out of its current recession (it almost certainly has).
In the end, this data is what will determine whether the MPC is bold enough to cut rates in June or in August (or, if the data shows an unexpected increase in inflation, to put those cuts off for longer).
So it’s a waiting game. But it looks like there’s not that much longer to wait.
Billionaire Sir Jim Ratcliffe has told Sky News that Britain is ready for a change of government after scolding the Conservatives over their handling of the economy and immigration after Brexit.
While insisting his petrochemicals conglomerate INEOS is apolitical, Sir Jim backed Brexit and spent last weekend with Labour leader Sir Keir Starmer at Manchester United – the football club he now runs as minority owner.
“I’m sure Keir will do a very good job at running the country – I have no questions about that,” Sir Jim said in an exclusive interview.
“There’s no question that the Conservatives have had a good run,” he added. “I think most of the country probably feels it’s time for a change. And I sort of get that, really.”
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Sir Jim was a prominent backer of leaving the European Union in the 2016 referendum but now has issues with how Brexit was delivered by Tory prime ministers.
“Brexit sort of unfortunately didn’t turn out as people anticipated because… Brexit was largely about immigration,” Sir Jim said.
“That was the biggest component of that vote. People were getting fed up with the influx of the city of Southampton coming in every year. I think last year it was two times Southampton.
“I mean, no small island like the UK could cope with vast numbers of people coming into the UK.
“I mean, it just overburdens the National Health Service, the traffic service, the police, everybody.
“The country was designed for 55 or 60 million people and we’ve got 70 million people and all the services break down as a consequence.
“That’s what Brexit was all about and nobody’s implemented that. They just keep talking about it. But nothing’s been done, which is why I think we’ll finish up with the change of government.”
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UK needs to get ‘sharper on the business front’
Prime Minister Rishi Sunak has indicated an election is due this year but Monaco-based Sir Jim is unimpressed by the Conservatives’ handling of the economy.
“The UK does need to get a bit sharper on the business front,” he said. “I think the biggest objective for the government is to create growth in the economy.
“There’s two parts of the economy, there’s the services side of the economy and there’s the manufacturing side. And the manufacturing, unfortunately, has been sliding away now for the last 25 years.
“We were very similar in scale to Germany probably 25 years ago.
“But today we’re just a fraction of where Germany is and I think that isn’t healthy for the British economy… particularly when you think the north of England is very manufacturing based, and that talks to things like energy competitiveness, it talks to things like, why do you put an immensely high tax on the North Sea?
“That just disincentivises people from finding hydrocarbons in the North Sea, in energy.
“And what we need is competitive energy. So I mean, in America, in the energy world, in the oil and gas world, they just apply a corporation tax to the oil and gas companies, which is about 30%. And in the UK we’ve got this tax of 75% because we want to kill off the oil and gas companies.
“But if we don’t have competitive energy, we’re not going to have a healthy manufacturing industry. And that just makes no sense to me at all. No.”
‘We’re apolitical’
Asked about INEOS donating to Labour, Sir Jim replied: “We’re apolitical, INEOS.
“We just want a successful manufacturing sector in the UK and we’ve talked to the government about that. It’s pretty clear about our views.”
Sir Jim was keener to talk about the economy and politics than his role at struggling Manchester United, which he bought a 27.7% stake in from the American Glazer family in February – giving him an even higher business profile.
Old Trafford stadium in Manchester. Pic: AP
Push for stadium of the North
He is continuing to push for public funds to regenerate Old Trafford and the surrounding areas despite no apparent political support being forthcoming. Sir Keir was hosted at the stadium for a Premier League match last weekend just as heavy rain exposed the fragility of the ageing venue.
“There’s a very good case, in my view, for having a stadium of the North, which would serve the northern part of the country in that arena of football,” Sir Jim said. “If you look at the number of Champions League the North West has won, it’s 10. London has won two.
“And yet everybody from the North has to get down to London to watch a big football match. And there should be one [a large stadium] in the North, in my view.
“But it’s also important for the southern side of Manchester, you know, to regenerate.
“It’s the sort of second capital of the country where the Industrial Revolution began.
“But if you have a regeneration project, you need a nucleus or a regeneration project and having that world-class stadium there, I think would provide the impetus to regenerate that region.”
Marks & Spencer’s website and app has not been working for several hours, with a message telling shoppers “you can’t shop with us right now”.
“We’re working hard to be back online as soon as possible,” it adds.
All the menus and images have disappeared apart from one showing a model in a green jacket.
Customers trying to use the app got the message: “Sorry you can’t shop through the app right now. We’re busy making some planned changes, but will be back soon.”
The site is understood to have been down for several hours.
Replying to one customer on X, the retailer said: “We’re experiencing some technical issues but we are working on it.”
M&S is the latest high street name to have technical issues – last month some Sainsbury’s shoppers had problems with their online orders.
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The outage comes a few days before M&S is expected to reveal a big jump in annual profits.
It’s been a successful year for the brand, with strong sales across the business following a turnaround plan that has included store closures and cost cutting.
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