IMF gets it wrong again
THE International Monetary Fund ought to have learned lessons by now. As a monitor of the global economy, it has no mandate to poke its nose into Britain’s domestic politics.
French chief economist Pierre-Olivier Gourinchas couldn’t resist the temptation, telling media outlets that the Chancellor Jeremy hunt should be ‘trying to rebuild fiscal buffers’ rather than delivering further tax cuts beyond £20bn in the Autumn Statement.
how the Chancellor chooses to use the headroom, surplus resources in the public finances, is a political choice, not simply an economic decision.
The intervention by Gourinchas is a grotesque interference in UK domestic affairs in an election year and bound to be seized upon by opposition parties.
It is also grossly unfair. The UK’s fiscal position compares favourably with most of the G7 including the US, Japan, Italy and France, all of which have higher levels of debt to national output than Britain.
Reducing the burden of taxes on consumers and businesses, at a time when they stand at 37pc of national income, the highest ever level in peacetime, is a necessity if enterprise is to be encouraged. It might also tempt some of the 7m or so citizens who have dropped out of the workforce off benefits and back into jobs.
As the IMF’s updated World economic Outlook report makes clear, disinflation should allow interest rates to come down.
That should lower the cost of servicing the national debt, creating more room for easing the tax burden.
The IMF’s credibility has been sorely tested in recent times by dodgy forecasts and statements. Notoriously, former managing director Christine Lagarde (now president of the european Central Bank) intervened in the 2016 eU referendum to declare that Brexit would be ‘pretty bad, to very, very bad’ for the UK. Lagarde compromised IMF independence and was wrong.
Down the hatch
DeBRA Crew is facing a baptism of fire at Diageo. The shares have plummeted amid botched management in Latin America and amid fast-changing consumer tastes. Crew describes Latin America as a ‘perfect storm’.
Impressive sales growth in Brazil and Mexico have been followed by chaos. Ambitious ordering of premium brands led to large scale overstocking and a calamitous 23.5pc fall in sales in the six months to December.
The most worrying aspect of the whole debacle is how little visibility Crew and Diageo had.
The systems did not exist to gain early warning of the problem, raising questions about the robustness of data elsewhere in the group. Crew is insistent that the checks and balances are fine elsewhere.
In the US there is clear, daily visibility via the company’s two main distributors. In China, QR codes on the ancient spirit Baijiu help provide real time information.
Diageo thinks it is well placed amid a trend towards non-alcoholic drinks. Among the success stories are gin look-alike Seedlip, Captain Morgan Spiced Gold and Guinness 0:0. Premium brands are seen as fairly immune to changing tastes and forging ahead in high growth markets, such as India, where Johnnie Walker is doing a roaring trade. There are signs of strain in the US where consumers have traded down from single malts and George Clooney-founded Casamigos tequila to less pricey brands.
Investment in new brewing for Guinness is paying off with sales in europe up 24pc and women particularly enamoured of stout.
Crew is confident that Latin America will right itself by the end of 2024. In the meantime, the group is doubling down on investment in Scotch with the reopening of the Port ellen distillery on Islay, which closed in 1985. It is not giving up on luxury just yet.
Shoddy banking
UNDeR Noel Quinn’s leadership, hSBC has sought to put past blunders behind it.
The Bank of england’s imposition of a £57.4m fine for its failure to provide data on customers eligible for compensation (in the unlikely event the bank went belly up) is an embarrassment. The sin may not be comparable to historical wrongdoing, notably money laundering for Mexican drug cartels, but shows blatant disregard of regulation.
It has been made worse by the ring-fenced UK bank’s rushed and incorrect filings. The sloppy approach, which led to some 70pc of customers being excluded from the scheme, does not speak well to the effectiveness of hSBC’s vast compliance teams. Buck up.