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Bank of England (BoE) Governor Andrew Bailey admitted he felt “helpless” in the face of surging inflation

   News / 17 May 2022

Published: 17 May 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight

Bank of England (BoE) Governor Andrew Bailey admitted he felt “helpless” in the face of surging inflation as he appeared before the Treasury Committee in parliament yesterday. MPs suggested he had been "asleep at the wheel," as had other senior figures such as deputy governor Sir Dave Ramsden, and Monetary Policy Committee (MPC) members Jonathan Haskel and Michael Saunders who also faced a grilling. Bailey responded by saying 80% of the causes of inflation were global market forces beyond his control and that he has “run out of horsemen” when counting the shocks facing Britain. “We can't predict things like war,” he said. “A sequence of shocks like this that have come one after another with almost no gaps is almost unprecedented, I think.” He said the current crisis was the Bank's biggest test in its 25 years of independence, a test he insisted makes independence and the inflation target all the more important. Accused of being “slow off the mark” in raising interest rates to combat inflation, Michael Saunders, who voted for .5 basis point increase at this month's meeting, said he would like the Bank to move more aggressively, but argued that even if the Bank had raised rates more aggressively last year, it's unlikely that would have brought inflation back down to the target of 2%. "It would have made a different only at the margin, if it had made a difference at all," Dave Ramsden added. Bailey also told the Committee that the UK labour market has declined by 450,000, or 1.3% due to an increase in long-term sickness, adding that the "persistence and scale" of the drop has been a surprise.  The BoE increased interest rates for the fourth consecutive time earlier this month, from 0.75% to 1% — the highest level in 13 years – and now expects inflation to hit as high as 10% later this year, five times its 2% target. Inflation was last below 2% in July. The BoE has also forecast a sharp slowdown in UK growth in the latter part of the year, but avoid a technical recession, with the economy stagnating with growth of just 0.25% in 2023.
“I don’t want to panic you,” BoE Governor Andrew Bailey told the Treasury committee yesterday, before going on to predict an “apocalyptic” global food crisis. He said he is increasingly concerned about a further surge in food costs if Ukraine, a major crop grower, is unable to ship wheat and cooking oils from its warehouses because of a Russian blockade. “That is a major worry. It is not just a major worry for this country, it is a major worry for the developing world,” he said. “I am by no stretch of the imagination a military strategist, but whatever can be done to help Ukraine get its food out would be a huge contribution.”
The Guardian’s parliamentary sketch writer John Crace summed up yesterday’s Treasury Committee session thus: “The session meandered on for the best part of two hours with everyone in a state of denial. No one really wanted to acknowledge just how f**** the economy was or that no one had a clue what to do about it. Just hope things would return to normal at some point in the future and that some of us would be alive to see it. Don’t talk about the 80%. Or the 20% for that matter. Try to think of a happy place. And definitely don’t mention Brexit.”
“Today, Labour will give MPs another chance to support our one-off windfall tax on oil and gas producer profits to bring down bills,” Ed Miliband, shadow climate change and net zero secretary said this morning. Labour MPs are seeking to force a Commons vote on the matter, buoyed by a previous vote in February in which MPs supported a Labour motion for the new windfall tax to be imposed on North Sea producers to fund a support package for families and business, back in February. However, at the time, Conservative MPs abstained, and the Government was not compelled to act as the motion was non-binding. British oil giants BP and Shell have both reported a huge jump in profits as energy prices have skyrocketed.
The price of diesel has soared to a fresh record high despite the 5p cut to fuel duty. Average pump prices hit 180.29p a litre on Sunday, according to the latest data from the AA, above the previous high of 179.90p on the day of the Spring Statement on 23 March. Petrol reached 166.65p, just 1p short of its all-time high. Simon Williams, fuel spokesperson for the RAC said: "Efforts to move away from importing Russian diesel have led to a tightening of supply and pushed up the price retailers pay for diesel…Had [Chancellor Rishi] Sunak reduced VAT to 15% as we call on him to do instead of cutting duty by 5p, drivers of diesel vehicles would be around 2p a litre better off, or £1 for every full tank. As it is, drivers are still paying 27p VAT on petrol and 29p on diesel, which is just the same as before the Spring statement."
Rents are on average nearly £100 per month higher than a year ago, according to Zoopla. The average UK monthly rent was £995 in the first quarter of this year, up by 11% from £897 a year ago, the property website said, having based its index on new lets agreed.
Retailers are urging the government to reform the apprenticeship levy system following a study from the British Retail Consortium (BRC) showing an overwhelming majority of retailers believe the current system is inadequate, inflexible, and does not support essential courses that are needed for a thriving retail industry. 95% said they think the system needs to change, with some estimating they could create up to 1,000 new apprenticeships each if it was overhauled. Two-thirds of respondents say more than 40% of their levy funds go unspent and individual retailers have lost up to £12m per company in unspent funds since the levy was introduced. “People are losing out on essential training, opportunities are being wasted, and money is being lost", the BRC said. The apprenticeship levy, introduced by the UK government in 2017, is a form of taxation designed to help firms offer more apprenticeships.
Senior officials at the Serious Fraud Office (SFO) were in “serious breach” of their duties during an investigation into a Kazakh mining company, according to a High Court ruling. Judge David Waksman found that Neil Gerrard, a former partner at City law firm Dechert, had been induced by the SFO to hand over material about his then-client ENRC in breach of his own duty of care. The Judge said this was an act of "bad faith opportunism" on the part of the white-collar crime agency. The judgment will come as a further blow to the SFO, which is currently under investigation for “serious failures” in a separate case that led to the quashing of bribery convictions, The Telegraph says.
Phones 4u has begun a High Court fight with mobile network operators eight years after the company went into administration. Administrators are seeking damages from EE, Deutche TeleKom, Orange, Vodafone and Telefonica,alleging “evidence of unlawful collusion” which infringed “prohibitions on anti-competitive arrangements” to “withdraw from Phones 4u” or to “put Phones 4u out of business”. The mobile network operators involved deny the allegations made against them.
After facing criticism last week and warnings pig farmers could go out of business, Tesco has now agreed to provide an additional £6.6m in additional support, taking the total the supermarket has pledged to the sector to £10m.
Shares in retailer Made.com fell as much as 22% to record lows yesterday, before recovering to trade 10% lower, after it slashed its sales forecasts and issued a profit warning, Yahoo Finance reports. The online furniture company warned the market was weaker than forecast and trading had been “volatile in recent months and more challenging than anticipated at the start of the year”. It now expects gross sales to fall by up to 15% this year and to post a loss of between £15m - £35m. In March, it forecast gross sales growth of between 15% and 25% and profits of between £5m and £15m, on the assumption that global supply chain disruptions normalised.
Renewable infrastructure fund Greencoat UK Wind has agreed to acquire a 12.5% stake in the Hornsea 1 offshore wind farm, 80 miles off the Yorkshire coast, from Global Infrastructure Partners for approximately £400m in cash.
Investment bank Goldman Sachs says its senior staff will be allowed to take unlimited unpaid holiday under its new "flexible vacation" plans designed to promote "rest and recharge". Junior bankers, however, will still only be entitled to a fixed amount of holiday. The bank has been accused of overworking younger staff in the past.
Funeral care provider Dignity has said CEO Gary Channon will stand down following the group's annual general meeting on 9 June to be replaced by Kate Davidson, who re-joined Dignity as COO in June 2021 after a number of years with the business.
Renault has announced its shares in Renault Russia will go to the Russian Federation and the government of Moscow, and that it will sell its 68% majority stake in Russian carmaker Avtovaz to a Russian science institute, the BBCreports. Moscow said Renault's Russian assets had now become state property. It is the first Russian nationalisation of a major foreign business since the invasion of Ukraine. Financial details of the deal were not provided, but in April Russian Industry and Trade Minister Denis Manturov said Renault planned to sell its Russian assets for "one symbolic rouble".
McDonald's said yesterday it will exit the Russian marketplace. "The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald's to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald's values," the company said in a statement. The American fast-food giant first opened in Moscow in January 1990, two years before the Soviet Union was dissolved.
AFP reports that The White House openly criticised Amazon founder Jeff Bezos yesterday, after he had publicly criticised the Biden administration's fiscal and economic policies on Twitter. "Raising corp taxes is fine to discuss. Taming inflation is critical to discuss. Mushing them together is just misdirection," Bezos tweeted, seemingly in reply to President Joe Biden’s plans to increase taxes on wealthy corporations to fight spiralling US inflation. Additionally, referencing Biden's social spending Build Back Better bill, which stalled in Congress, Bezos criticized the administration for having "tried hard to inject even more stimulus into an already over-heated, inflationary economy." "It doesn’t require a huge leap to figure out why one of the wealthiest individuals on Earth opposes an economic agenda for the middle class," said Andrew Bates, deputy press secretary. "It's also unsurprising that this tweet comes after the president met with labor organizers, including Amazon employees," he added. Bates was referring to Biden's recent White House meeting with Christian Smalls, the president of the Amazon Labor Union, during which Biden hugged Smalls, who wore a jacket with the slogan "Eat the rich" emblazoned on it. "You're trouble man," Biden told Smalls, adding: "I like you, you're my kind of trouble."
Elon Musk has indicated he wants to pay less than the $44bn he has offered for Twitter after telling a tech conference in Miami he believes at least 20% of the platform’s accounts are bots. Reducing his offer wouldn’t be “out of the question,” he said, having already put the deal “on hold” after raising concerns about fake accounts. Twitter has previously said it believes that less than five per cent of its accounts are fake, a claim Musk said might amount to a “material adverse misstatement” if that turns out to be wrong. Earlier yesterday CEO Parag Agrawal claimed on Twitter that it would be difficult to conduct an external review to determine the percentage of bots and fake accounts. Agrawal was rewarded for his defence of the company with a reply from Musk in the form of a poop emoji. Commentators are suggesting Musk may be going sour on the deal - despite a $1bn exit fee clause - because stocks in his electric vehicle company Tesla have fallen more than 27% in the past month. Musk indicated he would use Tesla stock to help finance the deal.

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