ALEX BRUMMER: arguments in favor of lowering interest rates


Right now, it is very difficult to stay true to economic projections. Nearly all analysts missed America’s 3.1% expansion in 2023 in the face of rising interest rates.

Here at home, the Bank of England’s forecasts have been so consistently wrong that it brought in former Federal Reserve chief Ben Bernanke to inspect the books.

All predictions for the coming week are that the Federal Reserve, which sets interest rates tomorrow, and the Bank of England, the next day, will make no changes.

It would take a significant change in sentiment within the Bank’s interest rate-setting Monetary Policy Committee (MPC) for borrowing costs to move on Thursday.

Two MPC members were still demanding an increase from the current 5.25 percent last month.

The big concern is that by keeping borrowing costs too high for too long, the Bank of England is committing an act of economic vandalism.

The big concern is that by keeping borrowing costs too high for too long, the Bank of England is committing an act of economic vandalism.

There is a real opportunity to surprise if Governor Andrew Bailey and the MPC are to move away from the doom and gloom about Britain.

Despite a setback in December, when consumer price inflation rose from 3.9 percent to 4 percent, the trend is undoubtedly downward.

Data from the British Retail Consortium shows that price inflation in stores fell in January, from 4.3 per cent last month to 2.9 per cent.

Inflation in stores hits its lowest level since February 2022.

A big worry for retailers is the rise in the national living wage. But average overall wage increases, 6.5 percent in the most recent quarter, are moderating.

Fears of a spiral in prices and wages are fading, even if the most recalcitrant layers of staff, young doctors and certain railway unions, are still resisting.

As the distortions caused by energy price caps fade, the consumer price index could fall dramatically in the coming months, moving closer to the Bank’s 2 percent target. .

The big concern is that by keeping borrowing costs too high for too long, the Bank is committing an act of economic vandalism.

There has been a lot of positivity about the UK lately. It would be a shame if keeping borrowing costs at current levels stifled the business.

Driven by the services sector, the British Purchasing Managers’ Index remains in positive territory and continues to surprise on the upside.

The GfK confidence index is at its highest level in two years. And British car production, boosted by electric vehicle production, saw its best growth rate since 2010 last year.

A cut in interest rates would have the added benefit of limiting the government’s borrowing costs at a time when 25 percent of Britain’s outstanding debt is linked to inflation.

Our message to the MPC: be bold.

Big deal

More than two years have passed since Chinese group Evergrande cast a deep shadow over real estate in the region by defaulting on its debt.

Since then, it has been engaged in a bitter struggle for survival by divesting itself of its assets. All of this came to a screeching halt with Hong Kong bankruptcy judge Linda Chan’s decision to call in liquidators.

The group is holding on with liabilities estimated at £260 billion and its dollar bonds trading at just 1 to 1.5 cents of face value.

Even the boldest vulture funds would be afraid of it. Hong Kong’s decision will pose an important test for the integrity of mainland China’s finances.

Under a deal signed between the territory and Beijing in 2021, China agreed that a Hong Kong court-appointed liquidator had the authority to take control of Evergrande’s properties in China. Capitalism in the style of Xi Jinping is facing a severe test.

Security net

Ryanair boss Michael O’Leary is not afraid to ruffle feathers. Its offer to take delivery of Boeing’s 737 MAX 10 planes, if U.S. carriers refuse to use their options, could mean low-cost planes.

Ryanair already has firm orders for 150 of Boeing’s largest 737s.

The proposal may have been aimed at distracting Ryanair from withdrawing its earlier profit forecast after a rift with some online travel agents.

O’Leary has repeatedly demonstrated that it is price and efficiency that have propelled his no-frills carrier to the top tier in Europe. As long as Boeing’s quality problems are resolved, Ryanair will be first in line.

Passengers may be less attracted.


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