UK confounds the critics

Remember the sterling crisis and how britain was a doomed nation as the pound sped towards parity after the mini-budget? Well, forget about it. Currency markets are notoriously fickle. As the daily leaks from Downing Street about the scale of the fiscal task ahead for the Chancellor in tomorrow’s budget have emerged, the pound has bounced. It hit $1.20 in latest trading for the first time since mid-August.

The warnings from bears of the UK are starting to look stale, misleading and dumb. bank of America strategists forecast UK inflation would head towards 20pc next year. Former US Treasury Secretary Lawrence Summers claimed the UK had lost ‘sovereign credibility’. Disgruntled Guernsey-based private equity baron Guy Hands declared that britain may need an International monetary Fund bail-out.

The speed with which the Truss-Kwarteng government was turfed out and another administration brought in speaks volumes for the resilience of UK democracy and the flexibility of economic decision making.

The pound has climbed 4pc in short order and believers in gilt-edged stock are sitting on handsome gains. There is a growing consensus in the wider financial community that the negativity about inflation and interest rates has been overdone.

morgan Stanley chairman James Gorman is among the optimists about prospects. His big number for the United States next year is four. That is 4pc for interest rates, 4pc for inflation and 4pc for unemployment in 2023. In his view, the scale of the Covid-19 and energy shocks is not anything like the financial crisis earthquake. If the US does dip into technical recession, it will be mild. And while the UK doesn’t always track the American economy, trading and financial connections means it often does.

The only hesitation is that Chancellor Jeremy Hunt, in his effort to establish britain’s fiscal probity, will overdo matters in the effort to close the fiscal gap of £70bn with excessive tax rises. by fiddling with the income and business tax regimes he risks stifling confidence, growth and enterprise. It is a travesty that Liz Truss and Kwasi Kwarteng were so inept in presenting their growth plans that lower taxes, investment zones and other expansion-friendly measures are off the table.

It is critical that amid the sombre tones, Hunt is able to elucidate some kind of vision and optimism for UK plc. Proposals to limit research-and-development tax credits for smaller firms look like a silly error. Smes and start-ups are the next generation of bigger firms and need incentives not pennypinching and despair. Hunt has won the markets over. Now he needs to re-ignite consumer and business aspiration.

Defence measures

everyoNe in finance and investing these days wants to wrap themselves in the environmental, social and governance (eSG) agenda. How meaningful are the judgements they make?

Tech stocks have been a big favourite of some eSG funds. but their consumption of power to drive their algorithms is enormous, making them huge emitters. bP is categorised as fossil fuel evil and cast aside as a sponsor of the british museum, yet it is arguably the biggest investor in renewables and green technology in britain.

For years, the UK’s defence and aerospace engineers have been regarded as business pariahs. The war on Ukraine demonstrates how vital they are to preserving british, european and global social democracies. bAe, which is proprietor of the UK’s main seagoing, fighter aircraft and land defence platforms, has been ignored by investors.

The reality is that order books are overflowing and earnings have just been upgraded because of global demand for all it does, ranging from high-tech avionics for the Pentagon, to new ships for the royal Navy and air defence equipment for Kiev.

blocking investment on eSG grounds is a misguided vanity.

Wrong numbers

CHIeF executive Nick read’s efforts to supercharge vodafone through the disposal of half of its stake in the vantage towers enterprise, and a merger with rival Three, doesn’t appear to be getting much traction with investors.

After a downgrade of free cash flow earnings for the year, reuters quotes one investor as saying the mobile pioneer is ‘too complex, too slow and too fat’.

If the shares are any guide, patience with read’s leadership is draining away.