Bank of England must cut rates and kickstart UK growth, says ALEX BRUMMER
Bank of England must cut rates and kickstart UK growth, says ALEX BRUMMER
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Rachel Reeves is haunted by a darkening economic outlook. Latest forecasts from the Office for Budget Responsibility (OBR) are thought to show that almost all the headroom has been used up since the Chancellor's October 30 Budget. Low growth, higher interest rates and stubborn inflation have eaten up near £10billion of fiscal space. The OBR has cast doubt on her investment rule, suggesting it was vulnerable to 'fiscal illusions'.
Reeves pledged her £40billion tax-raising hit was the end of the matter and she would not come back for more. Worse outlook: The Bank of England is expected to lower its growth forecast given worsening business conditions. There is now loose talk at Westminster of an emergency budget in March amid uncertainty in government about a trade deal with Donald Trump. It is against this background that the interest rate-setting Monetary Policy Committee will pronounce today. The Bank is expected to lower its growth forecast given worsening business conditions.
The latest survey from Britain's dominant services sector shows that 'stagflation' conditions took hold in January. New work declined and the shedding of jobs picked up to the highest level in four years. City consensus is that the rate-setters will cut by a quarter of a percentage point to 4.5 per cent. The Bank will have to skate over its regular formulation that its job is to always keep inflation at, or close to, the 2 per cent target. If it cuts, it will still be out of line with the eurozone, where rates have just been cut to 2.75 per cent with more to come.
Nor can homeowners expect any great relief on mortgage bills unless they are on tracker rates. Lower rates, meaning cheaper borrowing for companies and consumers, might help offset stagflation. The Bank could assist by slowing its quantitative tightening programme – the selling back of gilts into the market – to ease pressure on longer bond yields. Under Andrew Bailey's stewardship, the Bank has become defensive after its failure to combat the great inflation. Bolder decisions would be helpful.
Bad blood. Big pharmaceutical firms usually avoid making judgments on rivals. GSK's chief executive Emma Walmsley is unimpressed by the Government's crazy refusal to fulfil a pledge to help fund an AstraZeneca vaccine plant in Merseyside. Under Walmsley, GSK itself has beefed up its R&D spend to £6billion a year, with £1.5billion in Britain. A product of this is a blood cancer breakthrough compound named Blenrep.
It is among the reasons that GSK is so confident about forward prospects, lifting its long-term target for sales to £40billion by 2031. Less encouraging has been the performance of its RSV shot in the US with overall vaccine sales down 14 per cent in the final quarter. Fears that the rise of Robert F Kennedy Jnr to America's top health position would damage vaccine prospects in GSK's biggest market have retreated.
The market was cheered by the upgrades, lifting the stock a handsome 7.6 per cent. No thanks to Keir Starmer and Reeves. Next move... Another day, another defeat for Saba as it sought to upend the European Smaller Companies Trust. That is six down and one to go with a vote at Edinburgh Worldwide Investment Trust on Friday, February 14. It is hard to think that, having tied up £1.4billion to £1.7billion of capital, Saba boss Boaz Weinstein will be beating a full retreat.
