The case for cutting rates

Keeping faith with economic projections at present is really hard. Almost every analyst missed America’s 3.1 pc expansion in 2023 in the face of rising interest rates.

Here at home, the Bank of england’s forecasting has been so consistently wonky that it called in former Federal Reserve chief Ben Bernanke to inspect the books.

All the predictions for the coming week are that the Federal Reserve, which sets interest rates tomorrow, and the Bank of england, the day afterwards, will make no change. it would require a big shift in sentiment on the Bank’s interest rate setting Monetary policy Committee (MPC) for borrowing costs to move on Thursday.

Two members of the MPC were still calling for an increase from the present 5.25 pc as recently as last month.

There is a real opportunity to surprise if governor Andrew Bailey and the MPC want to break out of the doom-laden narrative about the UK.

In spite of a blip in December, when consumer price inflation went up from 3.9 pc to 4 pc, the trend is unmistakably down.

Data from the British Retail Consortium shows that shop price inflation came down with a bump in January to 2.9 pc from 4.3 pc last month.

Inflation in stores is running at its lowest level since February 2022.

A big worry for retailers is the rise in the national living wage. But overall average wage hikes of 6.5 pc over the most recent quarter are moderating.

Fears of a wage price spiral are in retreat although the most stubborn sections of the workforce, junior doctors and some railway unions, are still holding out.

As distortions caused by the energy price cap fall away, the Consumer prices index could decline dramatically in the coming months, dropping close to the Bank’s 2 pc target. The big concern is that by keeping borrowing costs too high for too long the Bank will commit an act of economic vandalism. There has been much positivity of late about the UK. it would be a pity if keeping borrowing costs at present levels were to snuff out enterprise.

Driven by the services sector, Britain’s purchasing Managers’ index remains in positive territory and continues to surprise on the up side.

GfK’s confidence measure stands at its highest level in two years. And Britain’s car output, boosted by electric vehicle production, enjoyed its best growth rate since 2010 last year.

Lowering interest rates would have the additional benefit of constraining government borrowing costs at a time when 25 pc of Britain’s debt stock is inflation linked.

Our message to the MPC: be bold.

Grand bargain

MORE than two years have passed since China’s evergrande group cast a deep shadow over real estate in the region by defaulting on its debt.

Since then, it has been engaged in an uphill fight for survival by jettisoning assets. All of that has now come to a screeching halt with the decision of Hong Kong bankruptcy judge Linda Chan to call in the liquidators.

The group has been hanging on by its fingertips with liabilities estimated at £260 bn and its dollar bonds trading at just 1-to-1.5 cents of their face value.

even the most daring of vulture funds would be fearful of that. The Hong Kong decision will be an important test of the integrity of mainland Chinese finance.

Under a deal signed between the territory and Beijing in 2021, China agreed that a court appointed liquidator in Hong Kong had the powers to take control of evergrande property inside China. Xi Jinping-style capitalism faces a stern test.

Safety net

RYANAIR boss Michael O’Leary has no fear of ruffling feathers. His offer to take delivery of Boeing’s 737 MAX 10 aircraft, if US carriers refuse to take up their options, could mean planes on the cheap.

Ryanair already has firm orders for 150 of the largest of Boeing’s 737 family.

The proposal may have been intended as a distraction from Ryanair’s retreat from an earlier profits forecast after a rift with some online travel agents.

O’Leary has repeatedly demonstrated that it is price and efficiency which has propelled his no-frills carrier to the top rank in europe. As long as Boeing quality problems are addressed, Ryanair will be first in line.

Passengers may be less enamoured.