Inflation is not out of control yet, Governor, but can you reassure us that it will not be?

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Inflation is not out of control yet, Governor, but can you reassure us that it will not be?


TThe annual rate of consumer price inflation in the UK was 2.5% in June, we learned last week, compared to just 0.7% in March. It got to this point sooner than almost any economist had expected in the spring. Now forecasters agree 3% is a nailed-down certainty this year, with a few saying 4% will be seen.

There is a strong feeling that the economy is changing rapidly. You can see this in the volume of transactions that drove house prices up 10% during the year through May, and in reports of staff shortages in pubs, restaurants, transportation and home builders.

Some of the inflation was inevitable, and some is easily explained. Consumers were expected to spend more freely after the lockdown and no one can be surprised that companies are trying to make up for lost trade, including by pushing up prices. The whoosh in the housing market is partly due to the rush to beat the return of stamp duty. And blockages in global supply chains, especially for computer chips for new vehicles, have contributed to a surge in used car prices.

But there is a challenge for the Bank of England here: What’s the plan if the comfortable theory that higher prices are just “transient” starts to unravel? What if inflation moves away from the 2% target and threatens to stay high?

The stakes are higher than in the past as the composition of UK borrowing has shifted after 11 years of quantitative easing (QE), the process by which the Bank creates money by buying government bonds. State and business. The debt profile is now shorter term, which means that the effect on debt service costs of any rise in interest rates is magnified. “In the old days, governments could inflate their debt. This is less and less the case as we move forward in the future, ”said Richard Hughes, President of the Office for Budget Responsibility recently.

Meanwhile, QE is in the spotlight after a dazzling report from a House of Lords committee last week saying the Bank had become ‘addicted’ to politics – a notable intervention by a panel whose members include former Bank Governor Lord King, who introduced QE in 2009.

The argument is that QE has not only deepened inequality by raising asset prices, but has also become a tool by default. The Bank has pledged to buy £ 450 billion in government bonds at the start of the pandemic. “If perceptions continue to grow that the Bank uses quantitative easing primarily to fund government spending priorities, it could lose credibility, destroying its ability to control inflation and maintain financial stability,” said The report.

There are of course strong counter-arguments. Quantitative Easing and other measures have reduced borrowing costs over the past 18 months and have provided “much needed support at a time of extreme economic stress,” Threadneedle Street said. There are also powerful incentives not to tighten monetary policy too soon. The leave scheme ends entirely in September, creating more stringent conditions for some of the hardest hit sectors.

Still, the risk of ignoring the drip of higher inflation is a panic reaction at a later date. “An ounce of inflation prevention is worth a pound of cure,” wrote Andrew Haldane before leaving as the Bank’s chief economist. Two current members of the Bank’s monetary policy committee, which sets interest rates – Michael Saunders and Sir Dave Ramsden – hinted last week about the need to act sooner than expected. The debate is alive and the outside world wants clarity.

Andrew Bailey, the Governor of the Bank of England, has already created confusion by claiming that government bonds could be resold in the market before interest rates are significantly raised, reversing the previous signal. The Bank’s next quarterly inflation report is due next month. It would be a good time to say when and how the Bank would act. Confidence that inflation will subside is one thing; the critical part is what happens if it doesn’t.

Even his freedom plan makes the government unpopular

When no one is happy with your decisions, you are doing something very good or very bad.

Few business leaders have offered a glowing review of government workplace guidelines on how to protect customers and staff from Covid-19 after July 19, when measures such as wearing masks will fail. more compulsory in England.

Unions stress employers who continue to require customers to wear masks will expose staff to abuse from angry customers who may think the law has now changed, as has the way they conduct their daily lives .

Waterstones has taken a safety-focused approach and will always require masks to be worn, as will Transport for London. Others, like Sainsbury’s and the Center Parcs vacation chain, would highly recommend it.

Hotel groups have welcomed the easing of restrictions on profit crimping, but largely scorn the idea that the government “encourages” them to promote mask wear. Some 80% of nightclubs, which have been closed for 18 months, say they do not intend to endanger the party atmosphere by doing anything of the sort.

On the other end of the spectrum, the Usdaw traders union has warned that retail staff, many of whom are young people who have yet to receive two doses of the vaccine, are now at risk.

Ministers, Shadow Secretary Ed Miliband said, were using shaky guidelines to shift responsibility onto struggling companies.

Behind the chaos lurks even more chaos, in the form of ‘pingdemia’, where hundreds of thousands of workers are alerted by the NHS Covid-19 app and asked to self-isolate, risking death. closure of large sectors of the economy.

The only people likely to be happy with the new guidelines are the companies that make or sell carbon dioxide monitors. In the absence of social distancing and masks, the guidelines emphasize air circulation. CO2 levels are considered a good indicator of ventilation.

The government may soon find that the air flowing in its direction is getting a little warmer.

The big music labels are the only ones singing a happy tune in the age of streaming

The damning report on the machinations of the music industry released by MPs last week shattered the myth that the rise of streaming has ushered in a new democratic era in which artists and record labels enjoy the same. way that the royalties arrive.

The 121-page report on the streaming economy by the committee of deputies of the Ministry of Digital, Culture, Media and Sports was scathing in its assessment: artists make “pitiful” returns on unilateral royalty deals . The power wielded by the major record companies (Universal Music, Sony Music and Warner Music) should be investigated by the UK competition watchdog.

Ten years ago, the music industry recovered from life-threatening digital piracy. Global revenues reached $ 21.6 billion last year, the highest since 2002 and the sixth consecutive year of growth. But business practices remain frozen in the past.

The committee heard shocking testimony of unfairness in the system. Nadine Shah, the 34-year-old Mercury-nominated artist with four hit albums, said she couldn’t pay her rent out of the amount of royalties she received from streaming.

Record companies in the UK made £ 1.1bn in 2019, while it may take over a million streams for an artist to make £ 1,000, meaning only megastars such as Taylor Swift or Ed Sheeran benefit from the streaming revolution.

Meanwhile, Warner Music’s stock price rose by a fifth last year, giving it a market value of $ 18.5 billion – owner Sir Leonard Blavatnik bought it for 3, $ 3 billion in 2011. And Universal, the world’s largest music company, is expected to float. in Amsterdam in September with a valuation of more than 35 billion euros.

The committee recommended a new payment system to increase artists’ incomes – fair compensation. However, many in the industry argue that it will not work as expected. For musicians, the streaming boom continues to fall on deaf ears.

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