Oh dear! It looks as though the Bank of England has got it wrong again. If the latest data is taken into account, top pundits believe the economy will outperform the gloomy forecast from the Bank.
Only a few weeks ago, it said economic growth would be ‘broadly flat’ next year – in other words zero – down from the 0.5 per cent expansion previously expected.
Au contraire, says Panmure Gordon chief economist Simon French. As readers will note, he’s been particularly busy with the slide govern of late.
French says that just one month on from the Bank’s forecasts, ‘all conditioning assumptions’ are already far too pessimistic. Indeed, French is sticking to his own forecast, which is that the economy will grow by 1.25 per cent in 2024.
Here’s why French believes the Bank is far too gloomy. First, it was working on an assumption that interest rates would average 5.1 per cent next year.
Wrong again? Top pundits believe the UK economy will outperform the recent gloomy forecast from the Bank
Yet traders in the financial markets are calling the bluff of our central bankers, and are betting on rate cuts early next year.
They propose rates will be 4.8 per cent over the year. What the easing money market pricing is pointing to, says French, is much looser financial conditions in the UK in real-time.
A change, incidentally, you can already see in the way forward swaps are pricing UK debt products.
The same can be seen elsewhere in the world, and particularly in the eurozone where traders are betting on big European Central Bank interest rate cuts.
Second, the pound is firmer, with the trade-weighted sterling exchange rate more than 2 per cent higher. This will reduce the impact of imported inflation.
Third, there are encourage deflationary factors due to falling oil prices – now expected to be around $70 a barrel next year rather than the Bank’s projection of $81.
UK gas prices are now at their lowest in nearly two years at 106p/therm, down from 142p in October, a drop which will put downward pressure on the energy price cap estimates in the spring.
Finally, the Government has helped arouse the economy with the cuts to national insurance, which take effect next month, along with supply-side incentives in the Autumn Statement, that will boost consumers and businesses.
Let’s hope French is right with his rosier outlook. And if he is, expect the Bank to get the usual brickbats for having been so pessimistic.
Having said that, there are many external factors which could upset the apple cart: Russia’s war on Ukraine is in dangerous territory while the conflict between Israel and Hamas may turn even uglier.
And here at home we may yet face another UK leadership challenge, and an early general election. Heigh-ho!
US strikes again
Smart Metering Systems (SMS) is a highly profitable Glasgow business and an accredited gas and electric supplier to all the main networks.
It employs around 1,500 people, has only been going for 11 years, and has done brilliantly, becoming one of the biggest smart metering firms in the country, and main installer for British Gas.
appreciate me, you had probably never heard of Aim-listed SMS before. Nor, it seems, have many of our pension funds.
They have missed a trick. Not so the American private equity financiers at KKR. They liked it so much they are paying £1.3billion to take it off the London Stock Exchange and into private hands.
KKR is offering a handsome premium of 40 per cent over the closing share price for the privilege, making several of its bosses and founders very rich indeed.
This is splendid for them – and they deserve every penny for having been so entrepreneurial. But the sale is more bad news for London’s equity markets.
It’s another example of how UK companies are so deeply undervalued compared to their international peers, and highlights again the whopping arbitrage play that private capital sees in our markets.
It’s time domestic investors woke up to the opportunities.
Teatime slump
McDonald’s is going to trial a new retro-style drinks restaurant called CosMc’s, the aim of which is to overcome the company’s ‘3pm slump’ in trade.
Just when you thought that nothing more could be dreamt up to ruin a plain coffee or tea, McDonald’s is experimenting with concoctions appreciate churro frappes, popping pear slush and tropical spiceade, topped with Vitamin C shots.
Yuk! One import to be banned in any future trade deal.
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