The big criticism of the Bank of England, since it started down the path of normalising interest rates two years ago, has been one of ‘group think’.
The Bank’s cadre of insiders saw inflation coming too late.
When it was finally recognised that the UK had a real cost of living problem, the interest rate-setting Monetary Policy Committee (MPC) pressed on regardless with 14 increases to the current 5.25 per cent level.
Dissidents on the MPC argued that monetary policy takes time to work but were given short shrift.
It is fascinating that Bank chief economist Huw Pill has started to soften his rhetoric. At the very least, he believes that UK rates have peaked.
He was absolutely clear on Tuesday when he argued that it was ‘not unreasonable’ to think that rates could start to come down next summer.
In his latest intervention, Pill acknowledged that the Bank would need to ease policy should the landscape change and the economy slow.
The tone of his comments was different to Governor Andrew Bailey who argues it is ‘really too early’ to be talking about a cut in rates.
Consumer prices at 6.7 per cent are still running at more than three times the Bank’s 2 per cent target but there is widespread understanding that when the October data is released next Tuesday, headline inflation will come down with a jolt.
There is expected to be adjustment for the energy price cap, the cost of food is moderating and producer prices have fallen into negative territory.
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The last time a crack opened up between Bailey and his chief economist was in 2021. Andy Haldane argued loudly, as early as the spring of 2021, that the inflation genie was out of the bottle.
He wanted an earlier rise in interest rates and before resigning showed his disagreement by voting against another round of quantitative easing.
Clearly, the division between Pill and Bailey is less pronounced. One cannot, however, discount Pill’s economic credentials which include a PhD from Stanford University and stints at the European Central Bank and Goldman Sachs.
It will be interesting to see if and when Pill decides to break with the group think and vote for a cut. Certainly, geo-political uncertainty and sluggish output in China point to an uncertain outlook.
The latest Reuters survey of economists found that 82 per cent think that UK rates have peaked.
More than one-third expect the first interest rate reduction in the second quarter of 2024 ahead of Pill’s August suggestion. The tide is turning against hard liners.
Diet pill
No wonder shareholders are reluctant to see Pascal Soriot step back as chief executive of AstraZeneca.
The Aussie-French boss continues to defy expectations. Astra projects full year income will be up in the low teens and earnings even higher.
AZ’s suite of oncology treatments are providing a lifeline to cancer patients around the world.
The market does not appear unduly worried about damage done to AZ from the court actions brought by families who allegedly suffered life-changing blood clots as a result of taking the Oxford vaccine in the pandemic.
There is reassurance from government indemnity. Among the reasons why Soriot is regarded so highly is his willingness to take bold decisions.
He took on the Oxford jab in spite of the fact that this did not play to AZ’s historic strengths.
He is correcting the company’s absence from the weight loss market through a £1.74billion deal with China’s Eccogene to develop a pill to compete with the Wegovy injection developed by Novo Nordisk. Early Eccogene data is regarded as promising.
Soriot recently indicated a willingness to serve for another five years. If a convincing succession plan is put in place by newish chairman Michel Demare, don’t expect him to hang around for that long.
Peak Picasso
Shortly before the stock market crash of 1987, the Tokyo-based insurer Sompo Holdings paid a record £33million for Vincent van Gogh’s Sunflowers.
The sale of the work (now disputed by its original German Jewish owners) was seen at the time as the peak of Japanese exuberance before the country’s lost decade.
This week in New York, Picasso’s 1932 painting, Femme A La Montre, sold at Sotheby’s for £114million – making it the most valuable piece sold at auction in 2023. Time to erect the safety nets.
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