Carney plays hardball
NO ONE could accuse Bank of England governor Mark Carney of holding back. Growth forecasts for this year and next may modestly have been pared but Carney plainly thinks that Brexit has done permanent damage to business investment which, even with a non-disruptive outcome of EU negotiations, will be difficult to catch-up.
The Bank’s August Inflation Report suggests that the level of investment could be 20pc lower in 2022 than before the June 2016 referendum.
I don’t want to be a Pollyannaish, but isn’t it possible that if exports start to take off, as the CBI suggests, many companies havering about investment decisions and building supply chains could restore previous plans?
The Bank’s gloom makes it imperative the government gets real about backing research universities, high-tech and fintech start-ups, the creative industries, makes it easier to fit next generation 5G phone masts and gets behind pharma innovation. Whitehall has a real duty to pick-up some of the private sector slack.
The governor did not confine his forceful words to Brexit. Carney gave Bank of England Unite union staff dissidents, demanding an end to the public sector pay cap, the bum’s rush. Private sector workers, in Carney’s view, have made enormous sacrifices since the financial crisis of ten years ago and there is no justification for rewarding government workers.
The Bank forecasts that consumer price inflation, which dropped sharply to 2.6pc in June, will peak at 3pc in the autumn but intends to ignore it anyway. If there is a ray of sunshine on the horizon for ordinary citizens it is the possibility that interest rates will start to normalise in the next couple of years as spare capacity is wiped out.
Two external members of the Monetary Policy Committee, Ian McCafferty and Michael Saunders, voted for a rate increase in August. The other hawk, Kristin Forbes, has flown the nest. One suspects it won’t be long before Andy Haldane becomes the first Bank insider to join the minority and the tide flows in the other direction.
Reversing last year’s emergency cut is a no-brainer, and the market expects rates to rise to 0.75pc in 2018 and to 1pc in 2020. This is unlikely to push borrowers over the edge even if homeowners have not seen a mortgage rate increase for a decade.
More importantly, at a time when the savings rate has plummeted, those putting money aside for the future deserve to be encouraged by better returns. A higher bank rate would also remove another threat to investment in the shape of the big cash payments companies are making to keep heritage pension funds solvent.
White-hot data
MARK Wilson is well advanced with the turnaround at Aviva, shedding undersized operations and focusing on trust in the brand and a stronger balance sheet.
A new relationship with HSBC should help with distribution. But chief executive Wilson wants a true revolution. He thinks insurance is in the stone age and needs to use the big data it has on clients to break away from endless form filling. He deplores comparison sites that cheat the consumer by paying undisclosed commissions to brokers and plans for a subscription approach to insurance similar to that used by mobile and internet giants.
Aviva Investors has been securing new global mandates despite the threat from low-cost platforms such as Vanguard. Fascinating stuff, made possible by the company’s restored profit and dividend growth.
Premium performance
LISTENING to Xavier Rolet, one might have thought that the rush of blood to the head which made him think that subordinating the London Stock Exchange to Deutsche Boerse was a good idea never happened.
Under Rolet’s leadership, the LSE has been doing very nicely on its own and is a much more nimble enterprise without lumbering Frankfurt thinking. The LSE’s investment in information and indexes continues to pay off. As was expected, as more derivatives transactions move from overthe-counter to recognised exchanges LCH Clearnet, earnings multiply.
Rolet supports the creation of a new ‘Premium’ listing for sovereign-backed companies such as Saudi Arabia’s Aramco and believes there is no conflict with LSE rules, as long as there is enough liquidity in the stocks for them to be easily traded.
The bigger problem might come if and when Venezuela or Zimbabwe seeks to take advantage of the opportunity for a prestige listing.