They’re brainy, thoughtful folk on Threadneedle Street. It’s always worth listening to the Bank of England and its interest rate-setting committee’s forecasts. But this is not science. Always keep in the back of the mind an image of Mark Carney in a fortune-teller’s shawl examining tea leaves and scratching his head.
Given that caveat, there are five quick takeaways from yesterday’s Inflation Report. First, the Bank has got more gloomy and doveish. Growth this year and next will be slower than it thought three months ago. This is going to be a bit more of a trudge than a plod. Interest rate rises have receded a bit further.
Second, expect UK consumers to continue to feel squeezed for at least another six months. That could point to an indifferent Christmas for those dependent on the seasonal splurge. Wage growth will, however, start to exceed inflation soon after the new year, putting consumers back into better spirits.
Third, savings rates will remain at rock bottom. The squirting of an extra £15 billion of cheap public money at banks and building societies under the Term Funding Scheme isn’t a huge amount but it means they have even less need to compete for deposits on the high street. Fourth, a recovery in exports and inward tourism is essential to keep the UK locomotive going. Fortunately, the cheap pound and a strong pick-up in the economies of the very trading bloc we’re trying leave suggests this might just be feasible. No irony there.
Fifth, there’s absolutely no sign of the UK clambering out of the quagmire of low productivity and low wage growth in which it has been mired for almost a decade. The Bank downgraded its forecasts for both. The journey towards a post-Brexit paradise of high skills and high wages hasn’t even begun.
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One other thought: the Bank’s projections are based on the assumption that businesses and consumers believe that the new relationship with the EU 27, whatever form it takes, will be forged without material disruption to trading conditions.
That’s a heroic premise. Remember to picture Mr Carney with his teacup.
Next please
Next has had a rotten 18 months. Its shares have halved from their peak, wiping £6 billion or so from shareholders’ capital. But at last Lord Wolfson Aspley Guise, the chief executive, has something cheerier to put in front of his bruised investors.
Full-price sales stabilised in the second quarter thanks to a surge in orders online and through its catalogue, which more than offset a continuing sales decline in its stores.
Lord Wolfson is playing down expectations, stressing that sunny June was a big contributory factor.
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Next has committed the ultimate sin in retail. It has ceased to grow. But it is still on track to churn out profits of £700 million a year and throw off lashings of cash.
It would be brave to call the bottom for the company just yet. But if the disciplined Lord Wolfson resumes buybacks, that really would be a persuasive buy signal.
Loyalty points
These are good times for insurers. It is only four years ago that Mark Wilson was having to slash the dividend at Aviva, so short was he of cash. Today, the chief executive reckons he has the luxury of £11 billion of surplus capital.
Axa and Esure also produced strong results yesterday. But while insurance shareholders are reaping the benefits, policyholders are not, especially motorists seeing hefty increases in premiums.
Wisely, insurers are no longer blaming phoney whiplash claims for everything. Insurance premium tax, which has doubled to 12 per cent in less than two years, is a more convincing excuse. So is the provisional ramping up of the Ogden formula, which unless amended will dramatically increase potential payouts to serious accident victims.
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Wilson says the motor market is dysfunctional and he is right. Customer loyalty is penalised. Promiscuity and dishonesty are rewarded. Aviva is trying to design new products to reward customers who stick with the company, including perpetual policies paid for monthly and with no end-date.
If it manages to crack this condundrum, it will be little short of a miracle. What joy for every insurance buyer if they didn’t have to go through the annual chore of shopping around, or at least pretending to shop around, then going back to the original insurer who in time-honoured fashion then capitulates on price.
Like energy suppliers, insurers are commoditised businesses with little option but to play the inertia game, winning new customers on the back of a cross-subsidy from the ignorant, the disorganised, the idle and the deludedly loyal.
Tree cheers
By the by, Mr Wilson categorises his many divisions into oaks, acorns and apple trees. Oaks are big established businesses providing reliable growth. Acorns are exciting tiddlers that might be the winners of tomorrow. Apple trees are units just requiring a bit of pruning before going on to fruit.
The fortunate Mr Wilson, while conceding the dangers of hubris, claims he now has no other species in his metaphorical orchard. Lesser bosses can only look on enviously as they ponder what on earth to do with their immoveable tree stumps, Leylandii hedges that enrage the neighbours and sap-dripping limes.
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patrick.hosking@thetimes.co.uk
Alistair Osborne is away