European consumers and businesses can look forward to relief from the relentless economic despondency today when the Frankfurt-based central bank delivers its fourth interest rate cut this year.
The European Central Bank (ECB) is odds-on to be joined by the US Federal Reserve, which is expected to deliver a boost to a motoring economy, with a reduction next week in its key interest rate of a quarter-of-a-percentage point.
There is unlikely to be any pre-Christmas gift from Governor Andrew Bailey and the Bank of England on December 19.
The Bank has been spooked by the October Budget. Rate-setters are concerned that the rise in employer National Insurance Contributions (NICs) will end up being passed on to consumers.
There’s also rumblings from public sector unions that, despite receiving inflation-busting wage deals in July, the proposed 2.8 per cent limit in 2025-26 will not be enough. Dread of a wage-price spiral is in Britain’s DNA.
Despite the best efforts of Keir Starmer and Rachel Reeves to make us all feel miserable about Britain’s economy, private sector forecaster Capital Economics is confident that the UK could outrun its European neighbours in 2025 and 2026.
Budget jitters: Bank of England rate setters are concerned that the rise in employer National Insurance Contributions will end up being passed on to consumers
Growth is predicted to accelerate from a shade under 1 per cent this year to 1.6 per cent next year and in 2026.
The Bank is super-cautious about inflation following the debacle of keeping rates too low for too long after the pandemic.
All indications so far are that the monetary policy committee will leave the UK’s key rate unchanged at 4.75 per cent on December 19.
The gap between ECB rates, expected to drop from 3.25 per cent to 3 per cent, and those in Britain grows wider.
Similarly, perking consumer prices in the US are not likely to stop the Fed from lowering its key range by to 4.25 per cent-4.50 per cent. If the Old Lady were more adventurous it would get behind expansion.
A cut next week would lift the mood of consumers in the final frantic days before the holidays, relieve pressure on companies from the NICs increase and power up the housing market.
Easier planning rules may open up more building – but it won’t be much use if there are no buyers.
Current mortgage rates make it impossible for 18-to-40-year-olds to get on the housing ladder.
A lack of joined-up thinking means that a Government promising to build 1.5m homes in this Parliament is cutting stamp duty relief for first-time buyers.
Holding UK rates higher than European competitors has driven the value of the pound against the euro to an eight-year high at €1.2157.
That might be good for holidaymakers heading off to the slopes. But it won’t make it any easier to sell great British goods and services on the Continent.
Deep dive
Business Secretary Jonathan Reynolds believes that Daniel Kretinsky, the would-be buyer of Royal Mail, is a legitimate businessperson.
But even if Britain ignores the tycoon’s entanglements with Russia, the EU may have its own, different concerns.
Brussels has set a deadline of January 21 to decide whether to open a second full probe into the £3.6billion bid for International Distribution Services, the Royal Mail owner.
In addition, Kretinsky’s bid also will need to clear foreign subsidy rules. The aim is to determine whether funds from foreign companies distort EU markets.
One possibility is that cash from the surging price of first-class stamps might be paying for investment in parcels unit Global Logistics Services.
In deals with the ‘Czech Sphinx’, no envelope should be left unopened.
After life
Clive Cowdery’s done it again. The insurance executive is the master of buying dull old life insurance companies, packaging them up in a neat parcel, and selling them on for big bucks.
The impact on unaware policyholders, as savings are passed around in the manner of an old vase at an antique fair, is less clear.
This time, Cowdery is selling Resolution Life to Japan’s Nippon Life in a deal which values the enterprise at £8.48billion.
Cowdery advisers are keeping schtum on how much our hero is pocketing.
Sensible. If he came clean, policyholders might demand a share.
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