Baffling Baileynomics is bad news for inflation

Can it really be as hard to be the governor of the Bank of England as Andrew Bailey is making it look? The key part of his job is chairing the Monetary Policy Committee. In turn, its key role is to set Bank Rate to try and keep inflation as close to 2 per cent as possible. Everything else is detail.

As we see every month nowadays, the MPC’s policy has not been conspicuously successful. Inflation nudging 10 per cent is now at a level which starts to destroy faith in paper money, and which guarantees trouble and strife as we all lose the place in trying to establish the price of things. So the MPC is being really tough, raising Bank Rate to 1.25 per cent. Cash invested at this rate would take 70 years to double. Ten per cent inflation, by contrast, halves the value of your pound in just seven years.

Bailey hinted this week that Bank Rate might leap up by a daring 0.5 per cent at next month’s meeting. Most of us would say that 1.75 per cent is still a level more suited to a banking crisis than a serious attempt to try and reach the mandated target. Bailey tells us about the narrow path he must tread between curbing inflation and precipitating a recession, but really, interest rates at this level are historically ridiculously low, and it is no part of his remit to try and double-guess the recession risk.

He will have seen yesterday’s borrowing figures from our spendthrift government. They show that much of the extra £30bn that Liz Truss says she can magic up has already been spent, and that a Heath/Barber dash for growth is likely to end the way theirs did. As with the unlamented Johnson administration, pretending that a government can spend what it likes and simultaneously cut taxes is economic fantasy.

This is only indirectly Bailey’s problem. The investors who are putting up all the new money to finance the state will have noticed that Truss has already hinted at limiting the Bank’s independence. They need to be confident that this is just posturing, and that he will be allowed to do whatever it takes to bring inflation down. Should they decide that he is not really prepared – or allowed – to do it, they will demand a higher return to justify the increased risk. We are not quite there yet, but confidence is a fragile flower, and unless it is properly looked after, can wither faster than a pot plant in a heat wave.

Not Wellcome

The £38bn Wellcome Trust has sold its holdings in BP and Shell. The motive for the sale is not entirely clear, nor is it clear whether the sale is part of a general clear-out of stocks in companies which provide the bulk of the world’s energy. Wellcome doesn’t like to make a fuss, despite being one of the world’s most successful long-term investors.

Perhaps its fund managers have noticed the way shares in Big Oil have run up following the price of crude, and have decided to take profits and search for better prospects elsewhere. An internal memo seen by The Guardian blandly states: “For us to have influence, we need effective relationships. As with Wellcome’s other advocacy work, where we have challenging conversations with governments, international bodies or partners, it is not helpful for us to share everything in public about discussions we have with companies.”

The usual suspects from Friends of the Earth could only hurrumph that it has taken the trust far too long, and to ask why Wellcome had resisted the temptation to grab some green Brownie points from the sale. The company’s memo to staff rather pointedly says that the divestment was entirely unrelated to the decade-long campaign to persuade it to sell its holdings in the companies.

Apparently, the great sell-off has also included mining companies, allegedly to “insulate the fund from financial fluctuations.” This is self-evident nonsense, since financial fluctuations are what has allowed the fund to grow from its modest beginnings as owner of Sir Henry Wellcome’s original bequest to today’s charitable behemoth. Still, with the fund’s remarkable track record, this is as good a share tip as we are likely to get.

Many happy returns

The final chapter in the book of Euromoney as a listed investment has arrived. Started with a £6,000 credit line from parent Associated Newspapers in 1969 the business made (euro)money from the start. The inspiration of Patrick Sergeant, then the Daily Mail’s City Editor, who saw that the confluence of the expatriate US dollars flooding into London, burgeoning banking egos and the desire of central bankers to get onto the world’s financial stage presented an unmissable opportunity.

They wrote and read about themselves, and that opportunity has now been turned into £1.7bn with the takeover of Euromoney Institutional Investor. It’s the sort of gain that even a successful technology business would be hard pressed to match, but no technological breakthroughs were necessary, nor much risk. The only other organisation to see the potential was Institutional Investor, and Euromoney took it over, along with dozens of other publications, data companies, conference and exhibition businesses over the years.

Sergeant, now 98, had the foresight to pluck Padriac Fallon from us hacks on the Mail’s City desk and make him editor of the magazine. It was a perfect match. Oh, and at the same time Sir Patrick taught me all I know about financial journalism.