It is more than three years since Bank of England governor Mark Carney was accused by Labour MP and Treasury Select Committee member Pat McFadden of behaving like ‘an unreliable boyfriend, one day hot, one day cold’ in his hints about forthcoming interest-rate rises. And it’s more than a decade since the last time the official UK bank rate actually moved upwards: the only shift since McFadden’s remark has been a cut from 0.5 per cent to 0.25 per cent in August last year. In fact there’s a palpable sense that the Bank, in common with other central banks, has all but lost the power to deploy interest rates as a monetary tool, having left them so low for so long.
So we wait to see whether this week’s round of rate-rise signals lead to action at the Monetary Policy Committee’s next meeting on 2 November, or fades into the new year. The flurry began when MPC member Gertjan Vlieghe, previously labelled as the panel’s ‘über dove’, said, ‘We are approaching the moment when the bank rate may need to rise’ in response to inflation close to 3 per cent and ‘a modest rise in wage pressure’. Carney echoed that view in a speech in Washington, cautiously adding ‘over the coming months’.
Their remarks pushed the pound above $1.35 (its post-referendum low was $1.20) and to €1.14 from an August low of €1.07 and tourist-rate parity. A stronger pound is itself anti-inflationary, since it reduces import prices; and if inflation thereby ticks down again, the urgency of a rate rise will begin to evaporate. Hence the Bank may be trying temporarily to deploy the exchange-rate tool, at the expense of UK exporters, in the hope of being able to leave the interest rate tool in the box. Why? Because there are also fears — expressed by Carney to the irritation of Brexiteers who still regard him as a mouthpiece of Project Fear — that Brexit uncertainty is contributing to a slowing of growth and business investment, which won’t be helped by higher rates.
Nor will the housing market, which is now in a doldrums of stagnant prices and low turnover. Then there’s the looming consumer debt crisis, which gets worse month by month so long as disposable incomes fail to keep pace with inflation and credit is readily available. Would it be better to prick that bubble sooner or later?
The last quarter-point rise in bank rate, in July 2007, was the 35th rate change of the decade that preceded it. In those days, the mechanism was well oiled and well understood by markets — even if hindsight tells us the cheap-money era of the early 2000s laid the foundations for the financial crisis that followed. Now, central bankers are not so much unreliable boyfriends as petrified ones in a perpetual dither. The more finely balanced and scrutinised their decisions, the more potential negatives that might follow from a single move, the greater the temptation to do nothing until it’s too late. I’m not betting on a rate rise in November.
Those Ratner moments
I was intrigued to read that Moira Ratner, wife of former chain-store jeweller Gerald, urged her husband not to use the notorious passage of his speech to the Institute of Directors at the Royal Albert Hall in April 1991, in which he joked about earrings in his shops being ‘cheaper than an M&S prawn sandwich but [they] probably won’t last as long’, and about being able to offer a sherry decanter at such a low price ‘because it’s total crap’. His business promptly shed £500 million in market value and was gone by the following year, along with his fortune.
The ‘Ratner moment’ entered the language of business — and we witnessed a classic example in Lord (Tim) Bell’s shambolic Newsnight interview earlier this month, in which the once-invincible veteran of spin tried to declare himself innocent of Bell Pottinger’s association with the Gupta family in South Africa while Kirsty Wark read out an internal email from him claiming credit for winning the account. The PR firm he co-founded went into administration eight days later, the clients who had paid so handsomely for the benefit of its looseness with the truth all these years having stampeded for the exit.
This week’s Ryanair news story, however, almost certainly isn’t a Ratner moment in the making. The cancellation of 50 flights per day — 2 per cent of a daily schedule of 2,500 low-cost flights — in order to fulfil pilots’ holiday entitlements without spoiling the airline’s punctuality record, threatens to leave 250,000 customers uncompensated and has also wiped £500 million off the airline’s stock market value. But Ryanair boss Michael O’Leary built his business on the principle that passengers can ‘bugger off’ if they don’t like it, and says he doesn’t ‘give a rat’s arse’ about the share price. On that basis I suspect he’ll fly through this turbulence unscathed, chiefly because passengers on the uncancelled 2,450 daily flights will continue, grudgingly, to admire the cost-crushing operational ruthlessness that has transformed air travel to their benefit, however rudely they are sometimes treated.
Likewise, I predict one-click shoppers will not shun Amazon, despite the revelation by Channel 4 News that if you use the online retailer to buy a combination of household chemicals that could create a homemade bomb, the algorithm informs you that ‘customers who bought this’ also bought another lethal component, ball bearings. Like the promulgation of jihadist material through Google, Facebook and Twitter, this raises a whole other debate about the impossibility of effective surveillance, and the absence of any moral compass within internet automata that grow far beyond human scale.
But businesses like these that are highly efficient can, it seems, get away with amoral and uncaring attitudes because consumers still value them for what they offer, especially when it’s cheap or free. Only when the wider world has already recognised a brand to be a con trick at heart does that Ratner moment await.