The drumbeat for a cut in interest rates is building, with money markets betting on a reduction as soon as January 30 when the Monetary Policy Committee meets.
Some 62 per cent of traders have placed deals which point to a quarter of a percentage point cut in the bank rate to 0.5 per cent.
This follows a bearish speech by interest rate setter Michael Saunders.
He cited a ‘slow puncture’ in the economy and a sinking inflation rate – down at 1.3 per cent– well below the Bank of England’s target of 2 per cent.
The Bank of England’s Monetary Policy Committee meets on January 30 to decide how to set the interest rate
The last thing that the UK needs is a dose of Japanese-style deflation, falling goods and asset prices, which could take years to flush out of the system.
Nor would Mark Carney, in his last months as governor, want to be caught out like his predecessor Mervyn King, who was criticised at the onset of the financial crisis for failing to act quickly enough to avert a catastrophic slowdown.
The monthly output data showed this week that the economy stalled in November. That is hardly surprising given the uncertainty surrounding the outcome of the election, the threat of a rabidly Leftist government and no assurance that Brexit would ever be resolved.
I am in the camp which believes that even though the precise terms of our new trading relationship with the European Union are unknown, there is enough certainty for businesses to end their investment strike.
There is no shortage of positive stuff to make one think that a rate cut is not necessary. All indications are that Sajid Javid’s March budget will be expansionary.
The Chancellor, in his almost forgotten September review, raised spending across all departments by 4.1 per cent.
In the Budget, one would expect to hear much more about funding to turn around the regions and give sustenance to the UK’s dynamic science, research and technology sectors.
The age of austerity is set to be displaced by the age of investment. Moreover, for much of 2019, the darkest shadow over the global economy was the prospect of the US-China trade spat turning into an all-out war.
President Trump, smartly, has given his approval to a trade pact which commits China to buying $200billion (£151billion) of US goods, although some $360billion (£276billion) of tariffs will remain in place.
That should be more than enough to convince markets and the public that the good times can keep on rolling in a presidential election year.
At home there are signs that a moribund housing market, a big driver of UK confidence, is firing up again.
Official figures show that prices rose 0.3 per cent in November and that year-on-year growth climbed from 1.3 per cent in October to 2.2 per cent.
There is also anecdotal evidence of improving conditions at the very top of the London market in spite of onerous stamp duty.
Confidence in housing has been unlocked by the fierce competition among mortgage providers. The powerful offerings by HSBC in the mortgage market have forced rates down.
The average rate for a 75 per cent loan-to-value, five-year fixed-rate mortgage in October fell to 1.75 per cent.
HSBC’s presence with such pricing power is a side effect of ring-fenced banking which means that its UK operations are flush with cash.
One can understand the worries about deflation. But it might be safer for the Bank to hold back on a cut, especially as asset prices – in the shape of homes and shares – show no signs of subsiding.
In making the next rate decision the Bank also ought to remember savers who have seen the good deals, such as Santander’s 123 account, eviscerated.
Private giving
It is not often we get to congratulate companies for lower annual sales. But housebuilder Persimmon, under the stewardship of chairman Roger Devlin, has stopped the roll-out of shoddy, unsafe homes and instead is focusing on the quality of what it sells and on customer service.
No such compliments to former chief executive Jeff Fairburn, who made £82m of bonuses on the backs of suffering homebuyers. It turns out that Fairburn’s charitable arrangements are as low-rent as the homes he built. He is using a ‘donor advised fund’, looked after by the Charities Aid Foundation, which distributes donations to chosen good causes.
Needless to say one has no clue as to how much Fairburn has put in or the causes he is supporting.
Plus ça change…
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