First, Mark Carnage. Now, Andrew Bailout. What is it with Bank of England governors and their failure to communicate? Is it deliberate? Or a sign they’re not on top of the data? Or merely proof they don’t know when to shut up?
Carney gave us his famous fraud guidance — or forward guidance, as he preferred to call it. It became a running joke. No sooner had he jetted in from Canada in July 2013 than he produced his 7 per cent unemployment target: the first of his cues to lift interest rates above the then 0.5 per cent. Within weeks the jobless total was below that. Did he raise rates? Don’t be daft.
Instead, a year later, he pitched up at the Mansion House to declare that a rise “could happen sooner than the markets currently expect”. By July 2015, he was at it again, preaching from Lincoln Cathedral that a rates decision would come “into sharper relief” at the turn of the year. What did he actually do? Along came Brexit and he cut rates.
Betting against the Nostradamus of central banking became the smart choice. Why would Carney’s successor, Bailey, want to cultivate a similar reputation? Thursday’s decision to hold rates at 0.1 per cent was straight out of the Carney playbook — worse, in some ways, because Bailey was dropping hints so close to the monetary policy committee’s verdict. As he has been saying, the decision was a “close call”. So why pre-empt it?
And not least with remarks that look designed to mislead. On October 17, Bailey told the G30 group of central bankers that the MPC was increasingly worried about the effect of rising energy prices and supply chain bottlenecks on “medium-term inflation”. His conclusion? “We will have to act.”
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Yes, Bailey has only one of nine votes on the MPC. But it seemed to imply a hardening-up of thinking at the Bank, at one with the October 9 remarks of MPC hawk Michael Saunders: “I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously.”
Yes, it’s traders’ own lookout if they lose money betting on such comments. But it’s still disingenuous of Bailey to say that “none of us are going to endorse the market curve at any point in time”. Wasn’t that precisely what Saunders was up to? And why the pound fell 1.5 per cent against the dollar on the decision? To boot, the confusion creates a credibility issue — and worse.
First, Bailey comes over as a waffler whose words don’t mean anything, yesterday turning up on the BBC’s Today programme to insist he won’t “bottle it”, saying: “We do think interest rates will need to rise and they will rise.” If he’d kept quiet ahead of the MPC verdict, there’d be no need for a gory day-two post-mortem. Indeed, contrast the smooth guidance from Federal Reserve chairman Jay Powell on bond purchase tapering.
Second, the whole thing puts the Bank’s remit and Bailey’s competence under fresh scrutiny — what’s the point of a 2 per cent inflation target if he’s predicting 5 per cent by April and then does nothing? And, third, it invites the sort of jibe made by former ratesetter Andrew Sentance, who complained of “a shambles from a so-called independent central bank”.
As chancellor Rishi Sunak keeps noting, every one percentage point on interest rates and inflation could cost the Treasury £25 billion a year. True, it’s not fair on Bailey. But people question his independence, claiming he got the job to help to bail out the government’s finances. Communication farragos don’t help.
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Flying west again
Only under post-Covid conditions could something as normal as flying between Britain and America be hailed “a pivotal moment”. But Luis Gallego is right. Monday’s reopening of transatlantic travel is big news — and not least for the group he runs, IAG, the home of British Airways, Iberia, Aer Lingus and Vueling.
No airline is as dependent as BA on its US shuttle , which in 2019 chipped in €2.18 billion of IAG’s €3.29 billion pre-exceptional operating profits. Much came from ferrying business types across the Atlantic. Stop that and the damage is plain to see. Despite IAG flying 43.4 per cent of 2019 capacity in the third quarter, the group still lost €452 million — en route to a likely full-year operating loss of €3 billion, on top of last year’s £4.37 billion.
As Gallego notes, BA serves “more US destinations than any transatlantic carrier”. But will the traffic come back? The good news is that BA boss Sean Doyle is seeing bookings for “corporate travel pick up”, while more leisure travellers are upgrading from economy to “premium leisure”: a category, he says, that is “above 2019 levels in the past three weeks”. The bad? That on Morgan Stanley’s latest survey of 170 corporate travel managers handling $7 billion of budgets, 27 per cent “don’t expect to return to pre-Covid travel levels ever”.
If they stick to Zoom, IAG’s €12.4 billion net debts — €5 billion more than before the crisis — costing up to €800 million a year to service, will be an even bigger load to lug. The shares rose 6 per cent to 180¼p. But it’s a bit early to hail the return of IAG’s US money machine.
Hut gets smaller
Last time Zillah Byng-Thorne did her bit to prop up Shrinking Shed plc, the share price halved. Indeed, the efforts of The Hut Group’s senior independent director made you think a bit. If spending £49,670 on Hut shares last month at 408p was her idea of a bargain, what did it say about all the acquisitions she’s made in her day job as the boss of publisher Future?
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Whatever, she’s back again: 32,291 extra Hut shares at 200.2p. Even better, she’s enticed her hubby Max to buy 25,300 at a cannier 196.2p. As for the shares, they rose 4 per cent to 203¾p. Better luck this month.
