Inflation jolt for bonds
Just when it looked as if the Liz truss bond market shock was finally in the rear mirror, the country is starting to pay a heavy price for the Bank of England’s lamentable inflation fighting record.
the latest consumer prices data was disturbing enough for traders to send the yield on two-year gilt-edged stock soaring to 4.39pc.
uK bonds haven’t taken such a hammering since the mini-Budget of last autumn. Politically this is unhelpful to Rishi sunak. When the Prime Minister vowed to halve inflation this year, there was some impolite cackling as it appeared too easy a target to achieve.
the thinking at the Bank of England was that headline prices were heading back towards the 2pc target or even lower. At the treasury, the sotto voce prediction was that five points could be shaved by the summer.
Progress has been notoriously slow, and the April consumer prices index (CPI), down from 10.1pc to 8.7pc, is way above most forecasts. Core inflation, excluding volatile energy and food prices, climbed from 6.2pc to 6.8pc, the highest level for three decades, driven by the cost of services.
this could be disastrous for the Government as it seeks to keep the lid on pay demands from nurses, junior doctors and railway workers.
As worrying, it may give the Bank of England very little choice but to keep raising interest rates with the markets pricing in a bank rate of 5.25pc at the end of the year.
that in itself is self-destructive in that it means higher variable and fixed-rate mortgage deals, which raise the housing element in the prices data.
the danger is that the Monetary Policy Committee will decide it has no choice but to keep raising interest rates, even if it means killing a nascent recovery stone dead.
A troubling social aspect of the Bank’s failure to accurately model and cut inflation is rocketing food prices.
By now, one would have expected the energy, freight and logistics cost of Covid19, and Russia’s war on ukraine, to have worn off.
Instead, food and soft drink inflation, running at 19.1pc, is barely down on March.
We have heard a great deal about the price war for milk. Less discussed is the fact that, over the last year, milk, cheese and egg prices have shot up 29.3pc.
since food prices weigh most heavily on the least well off, this is unconscionable.
the shard of economic optimism from the IMF this week is in danger of vanishing over the horizon.
Marks sparkles
It may seem unfair to make comparisons between loss-making John Lewis and the recovery at Marks & spencer.
But even a cursory visit to the menswear departments at both stores shows a difference. At M&s, the carefully curated home grown Autograph collection is much easier to navigate than a jumbled John Lewis layout of famous brands.
Getting it right takes a long time. M&s has been through many iterations since the glory days of stuart Rose, but it required some high-level engineering by an experienced retailer in Archie Norman (involving a ruthless store closures programme) to make progress. the impact is finally being seen with clothing and home sales up 11.5pc. Its upscale food has delivered an eye-catching 8.7pc lift and has captured a 3.6pc share of a competitive market.
under the tutelage of chief executive stuart Machin, M&s shares have revived over the last year and, after a leap in latest trading, are up 46pc. the totemic retailer still has a long way to go to capture its status as star of the retail firmament, with the stock 40pc down over five years.
Healthy returns
CHIEF executive Amanda Blanc has not just discarded most of Aviva’s disparate overseas operations, but managed to shake swedish activist Cevian off the share register in record quick time. this has enabled the insurer to focus on domestic operations.
the big, fast-growing category in the first quarter was health insurance as customers seek private shelter from unreliable Nhs care. there have also been additions to its defined benefit pensions buy-out proposition, with funds managed up 26pc in the first quarter, with thomas Cook among the acquisitions.
Average earnings increases of 6pc-plus mean cash is flooding into Aviva’s ‘opt-in’ defined contribution funds.
the first quarter speaks well to Aviva’s two-pronged general and life offers.