Sterling was in calmer waters yesterday after Monday’s feeding frenzy, but the storm is far from over.
Huw Pill, chief economist at the Bank of England, has indicated that interest rates will rise, although not before November, when the next meeting of the Monetary Policy Committee is on the agenda.
Much is scheduled to happen that month.
Chancellor Kwasi Kwarteng and Bank of England Governor Andrew Bailey must move quickly to try to convince markets, voters and critics that the situation is under control.
Foreign Minister Kwasi Kwarteng says he will present his medium-term fiscal plan with new rules to balance the books over time on November 23.
And for those who denounced the lack of independent analysis last week from the Office of Budget Responsibility, promise a full OBR forecast.
The anticipation is building, but the idea that the world will wait patiently until the end of November is for the birds. It leaves a long and dangerous gap.
Kwarteng and Bank of England Governor Andrew Bailey must move quickly to try to convince markets, voters and Tory critics that the situation is under control. The Chancellor’s mini-budget was by no means the wild and reckless exercise that some describe.
On the one hand, the tax cuts are offset by the little-perceived effects of the fiscal drag, which will generate a lot of extra money.
Kwarteng left in place a four-year freeze on thresholds and allowances that, thanks to inflation, will generate around £45bn of additional revenue.
Most of the ‘cuts’ are curbing former Foreign Minister Rishi Sunak’s increases in national insurance and corporate income tax.
Pro-growth measures, including investment zones, reform of pension fund rules, and incentives for companies to invest, are eminently sensible.
Productivity and real wage growth in this country have stagnated since the financial crisis. Business investment is below the OECD average. Kwarteng is making an offer to do something about it.
The buildup against him and Liz Truss has been blown out of proportion and, at times, surprisingly scathing. Low taxes and high growth are two cardinal conservative virtues.
A third is fiscal responsibility. Unfortunately, by not detailing plans to balance the books in the medium term, Kwarteng left an open goal for his critics.
oil squirt
One couple who won’t have to worry too much about purse strings are Dave and Debbie Hardy, who run a construction company in the Midlands. Both are the main shareholders of the North Sea energy company, Serica.
It’s unusual to see individuals, rather than large institutions, at the top of a stock registry. Whatever motivated your investment, it was a very astute move.
Serica shares are up 42 percent this year and 1,170 percent in five years, closing yesterday at 355 pence. That means a huge paper gain for the Hardys, who bought it for as little as 3 pence a share several years ago. His stake is now worth around £100m.
Serica is cashing in on the North Sea oil boom as the UK and other countries seek to become less dependent on Russian energy.
More than 85 percent of its production is gas, providing an alternative source of domestic supply: around 5 percent of the total.
The shares suffered after Sunak imposed a windfall profits tax, but the company believes it can use investment allowances to reduce liabilities.
Earnings have soared to just under £200m in the first half of this year, from £2.2m in the same period in 2021.
A dividend of 8 pence per share announced yesterday will see them pay another £2.3 million in November. Dave and Debbie must have a pretty good claim to be Britain’s smartest private investors.
dump of history
As I warned earlier this week, the fall in the pound sterling has made British companies easy targets for American predators.
Although the turmoil in the markets has had a chilling effect, the pound’s weakness remains a powerful draw for bargain hunters.
Biffa, the waste management company, is the latest to succumb to a bid from US barons Energy Capital Partners (ECP), which has been scaled back from an initial proposal earlier in the summer.
Lenders are less willing to put up large sums to finance acquisitions in the current tinderbox climate, so the deal has been scaled back to boost it.
The result is that ECP may well have pocketed even more of a bargain.
Waste management is not a strategic industry at the level of defense, obviously.
But Biffa is a strong brand and UK market leader in a sector that, given the interest in recycling and sustainability, should have growth potential.
Another one bites the dust.
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