At least the Bank of England has stopped dancing around the idea that inflation will hit double digits this year. Back in March, the prospect wasn’t spelled out starkly; instead, there was a warning that the peak would be “several percentage points” higher than the 7.25% previously forecast. Now there’s no fudging: 10.2% is the official forecast for the fourth quarter of this year.
And, frankly, the figure should surprise nobody who has been tracking wholesale energy prices and projections for household bills, where the open question is how close the price cap (currently £1,971, having been £1,277 at the start of this year) gets to £3,000 when it is next revised in October. The Bank used £2,800 in calculations, which was entirely reasonable since half the six-month measurement period for calculating the cap has already passed.
That, though, was as far as the clarity in communication extends. The gloriously unclear part is Threadneedle Street’s plan to cope with 10% inflation, a sight not seen for 40 years. The pound sank two and half cents against the US dollar, which qualifies as a huge one-day movement and one that probably can’t be explained solely by the gloomy economic forecasts. A slice of the currency weakness may owe something to the confusion within the monetary policy committee about its next steps.
Three members wanted to raise rates by a half-point immediately, yet two others thought it was “not appropriate” to sign up to a statement that said, gently, that “some degree” of further tightening in monetary policy might still be needed in coming months. Nobody should expect consensus on the MPC (and group-think would be terrible), but the gap between the doves and hawks has rarely looked so wide.
A generous interpretation says that is because setting the correct policy framework is fiendishly difficult at present. Yet the decision-making won’t be made any easier if the pound keeps sliding, generating more imported inflation. The good(ish) news is that sterling’s performance against the euro, the more important currency from a trade perspective, has been nothing like as weak as against the dollar.
But, at $1.2350 – Thursday’s late-afternoon price – sterling is now creeping perilously close to the $1.20 low from which it has bounced every time since the Brexit vote in 2016. One wouldn’t want to see it go lower than that. Having spent most of 2012 arguing that inflation would be transitory, the Bank now has a big communication job on its hands. Talk of a sterling crisis is grossly premature, but we don’t want to get close to that territory.
London should be the chip leader
A political and financial battle is raging behind the scenes for the right to host the flotation, or IPO, of Arm, the Cambridge-based chip designer that was bought by SoftBank of Japan in 2016. Or, more accurately, the UK is putting up a fight.
The government and the London Stock Exchange are desperately keen to see Arm return to the London market, where, at £40bn-ish, it would be the biggest technology show in town. Over in the US, it’s hard to detect a lobbying overdrive. That is probably because Masayoshi Son, kingpin at SoftBank, has already indicated a preference for the Nasdaq stock exchange in the US – “the centre of global hi-tech”, as he called it.
So Hermann Hauser, one of the key figures in Arm’s creation, didn’t do London any favours on Thursday by seeming to agree with Son that the US has more cachet and more liquidity in tech. On the other hand, Hauser also said this: “Arm is a UK company. It worked well with a dual listing before and I’m very much in favour of having a dual listing in London again.”
The key point about a dual listing is that it never works if London plays second-fiddle. A standard listing, as opposed to the premium variety that qualifies for inclusion in FTSE indices, gets ignored if New York is seen as the primary venue. But the set-up can work in reverse. US investors are happy to own US depositary receipts in large FTSE 100 companies.
London should also shout about the happy existence on the Amsterdam exchange of ASML, the Dutch maker of machines central to the progress of the semiconductor industry. ASML is worth $200bn and shows that you can be very big in tech outside the US. London remains the rank outsider in the race for Arm, but it should keep pushing.
