ALEX BRUMMER: Can Andrew Bailey’s potent cocktail calm the markets

One of the remarkable aspects of the near three years of uncertainty over the UK’s departure from the European Union is how steady the global demand for British government bonds remained throughout. 

Former governor of the Bank of England Mark Carney reminded us that this was largely dependent on ‘the kindness of strangers’. 

In the past 48 hours the coronavirus has jolted us into understanding how vulnerable Britain’s very open economy is to external events. 

Baptism of fire: Since taking over as governor of the Bank of England , Andrew Bailey has dug deep into the Bank’s resources

The rush for the safety of US treasuries, encouraged partly by actions taken by the Americans to calm their own markets, came back to the UK with a vengeance, causing gilt yields to surge and pummelling the pound so it hit a 30-year low. 

Orderliness was not helped by social media speculation that London was headed for lockdown. 

Those who might advocate such a move need to remember that the City is the world centre of foreign exchange and trading, and that closing London down would be tantamount to shutting down global markets. 

In his first week and second press conference since taking over as governor, Andrew Bailey has dug deep into the Bank’s resources. 

His extra £200billion of quantitative easing is as big as that unveiled in 2009 as the world economy tumbled over a precipice. It increases the size of the Bank’s asset holdings to £665billion. 

The intervention is bigger and bolder than anything done by the Federal Reserve or the European Central Bank. 

Monetary critics are likely to see this – and Bailey’s assertion that there is more left in the tank – as heading down the road to perfidy by turning debt into money and setting in motion a future great inflation. 

The other part of the Bailey package, the lowering of interest rates to just 0.1 per cent (a second cut in a week) is unprecedented and will be a fresh blow to savers. 

Banks will have been pleased to hear that Bailey, like his predecessor, does not favour negative rates because of the pressure it places on lending margins and the safety of the High Street lenders. 

But in the present emergency, nothing at all can be ruled out. 

Retail therapy 

Making sense of the High Street in the middle of a pandemic is not easy. 

Amid the profit warnings and alarmist phone calls from senior retailers, it is useful to get some clarity. Step up Simon Wolfson of Next. 

When the country was deeply divided about Brexit, Wolfson appended to his financial reports an intelligent assessment of what leaving the single market and customs union would likely do in terms of taxes, duties and revenues. 

He is doing it again. Next has a warchest of £1billion, equal to onequarter of annual income. Sales from stores are sharply down at 46 per cent but online, homewares and clothing for kids are holding up. 

There have been some problems for the supply chain, as 27 per cent of goods come from China. But with demand under pressure, the kinks in supplies are a lesser problem. Elsewhere, Marks & Spencer shares have been hit hard. 

Its mixed portfolio, notably a strong food brand, means that it is in a better position than other stores to weather the storm. 

Buying food in M&S offers the opportunity to top up leisurewear for people more confined to homes. 

Burberry, with its high dependence on China, reports that it expects sales to drop 80 per cent in the final weeks of March as the peak of the virus moves from Asia to Europe and the US where 80 per cent of its stores are shuttered. 

It sits on £600million of cash and has a £300million credit facility before it even needs to think about dropping in on the Bank of England. 

There is a glimmer of hope in the darkest hour. China trading has started to pick up as stores are reopened. The course of Covid-19 is unpredictable but the evidence from Asia is that business can and does bounce back. 

Nursery banter 

As Andrew Bailey sought to explain the technical details of the Bank of England’s latest package to reporters in a conference call, there was a rare insight into one of the perils, or maybe pleasures, of home isolation and working. 

In the background could be heard the joyous whelps of a young child clearly delighted that Mum, or was it Dad, was at home. Bliss. 

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