Bailey takes prices blame: The Bank of England’s failure to attack inflation earlier is proving very costly, says ALEX BRUMMER
The Bank of England’s abject failure to beat back the scourge of inflation is costing the nation dearly.
Ahead of today’s April consumer prices data, governor Andrew Bailey told MPs that the Bank needs to think hard about how it operates monetary policy in the face of big shocks.
Chief economist Huw Pill went further noting that the models used by the Old Lady’s analysts failed to cope with extreme changes in energy and food prices.
The impact on the cost of living, with many prices rising in double digits, is damaging output.
Having changed its mind and upgraded the UK’s growth rate, the International Monetary Fund now says its forecast could have been more robust were it not for Britain’s need to tighten fiscal and monetary policy to curb inflation.
Uncertainty: Andrew Bailey (pictured) told the Commons that the Bank of England needs to think hard about how it operates monetary policy in the face of big shocks
The Fund doesn’t expect UK headline prices to return to 2 per cent until mid-2025.
Prime Minister Rishi Sunak will be relieved that the IMF forecasts inflation will have halved to 5 per cent this year.
That is a core government pledge. The Bank’s failure to attack inflation earlier, and its decision to maintain super low interest rates for too long, is proving costly.
Latest borrowing figures show the budget deficit rising to £25.6billion in April, £3.1billion above the March forecast.
The Office for Budget Responsibility pointedly notes the main factors behind soaring borrowing are interest payments on the national debt, up £3.1billion on a year earlier, and higher welfare spending.
Neither of these factors are likely to moderate while prices are soaring.
Almost a quarter of Britain’s national debt is held in inflation indexed gilts.
Cost of living related pay deals in the public sector and an uprate in state pensions and benefits will not help. Bailey and the timorous Monetary Policy Committee made mistakes which hurt us all.
Dialling up
These are tumultuous times for BT. Last week, chief executive Philip Jansen unveiled plans to cut the telecoms giant’s workforce by 55,000 by 2030 as the full fibre broadband push comes to an end.
Now, French-Israeli tycoon Patrick Drahi, owner of auction house Sotheby’s, has added to his 18 per cent stake in BT, bringing it up to 24.5 per cent.
Drahi has reiterated that he is not seeking to make a full bid for BT, which takes that option off the table for at least six months.
Nor does it appear from past business decisions that he is an activist satisfied with just making a noise and taking a profit.
Telecoms pump through his veins and he has made his mark on the industry in France, the US, Portugal and Israel.
All indications are that Drahi’s investment in BT is strategic and he has a long-term interest in UK communications.
Indeed, his commitment could be seen as evidence that international investors are attracted to the UK, despite efforts by opposition parties to denigrate and undermine confidence.
Drahi is not at present seeking a seat on the BT board. That may well be the result of having established a working relationship with Jansen, with both entrepreneurs having a common interest in extracting value from a piece of UK infrastructure that has lacked direction.
A slimmed-down BT with a mid-21st century broadband network and popular mobile network in EE could be the basis for stronger returns and further deal-making.
Don’t expect Drahi to sit on his hands.
Shell shocked
Scenes of activists seeking to storm the podium at Shell’s London annual general meeting might be viewed as good reason to support M&S chairman Archie Norman’s campaign (launched in The Mail on Sunday) to give shareholders greater access through regular online sessions with directors.
I beg to differ. Live AGMs may often be dull, attract eccentrics as well as small investors seeking a free sandwich or beer, but they have an honourable history of moving the dial.
The pressure applied to the Barclays board in the Apartheid era in South Africa eventually led to disinvestment and the fall of a racist government.
Similarly, efforts to drown out the words of chairman Andrew Mackenzie and the dissenting votes of Follow This will, over time, make Shell think harder about green targets and bring more environmental voices onto the oil giant’s board. It happened at Exxon, why not Shell?
