President Erdogan had a straightforward approach to tackling the endemic inflation in Turkey. Cut interest rates, and because financing would become cheaper, inflation would fall.
The experts said he’d be sorry and, sure enough, Erdoganomics came to a sticky end as the exchange rate plunged, and inflation danced away towards treble figures. Every real-world example shows that he was wrong, yet he was by no means alone in his earlier belief. Joachin Klement has found a survey about what Americans considered the impact of interest rates on inflation; 12 per cent said rates had no impact, 35 per cent agreed with the experts that cutting rates increased inflation.
Yet 35 per cent reckoned that cutting interest rates would also cut inflation. It’s probably fair to say that they had not been studying Erdoganomics to come to this conclusion. Rather, it betrays a remarkable ignorance about how the world works.
Of course, this was the US, and the average Brit might have a different view. Then again, he might not, since raising the cost of something is not the most obvious way to try and reduce price rises generally.
Surveys show that the general knowledge of money and interest rates in the UK is close to zero, that hardly anyone knows what an Annual Percentage Rate is, and that the offset mortgage (with its potential savings of thousands of pounds for no extra effort) has never caught on. Sunak-style A-level maths is hardly needed; instead, a basic understanding of interest rates and inflation is long overdue on both sides of the Atlantic.
Sunak’s charm offensive
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Our prime minister has spent a slice of his precious political capital trying to persuade Softbank, the Japanese owner of Arm, to list the shares in London, if not solely, at least alongside the quotation in New York.
Arm is rather more than a nice-to-have floatation, with its UK base and position in the ranks of the world’s chip designers. Softbank bought it off the stock market for $32bn in 2006, and nearly sold it for $66bn last year, so these are serious numbers for a serious business. Softbank could also do with a successful investment given the group’s travails elsewhere.
It is possible that the Rishi Sunak charm offensive will be rewarded, but it seems highly unlikely. For a start, a simultaneous listing on two exchanges is (nearly) twice as expensive. It’s a fact of life in markets that one will become dominant, since a higher volume itself attracts more business.
Besides, London’s recent history with Initial Public Offerings is not an unmitigated success. In 2022 the IPO tally fell by 45 per cent, perhaps reflecting the experience with some previous years’ issues. Even leaving aside such obvious duds as Aston Martin, the roll-call of disappointments is long, from Purplebricks, the business that was going to transform how we buy and sell houses, to over-hyped solid companies, like Dr Martens, the story is riddled with losses.
The experience in stocks sold as new technology, like Deliveroo, or those which are the real thing like Darktrace, is just as dispiriting. Retailing is investment fashion, as Joules proved with the shares sold at £2 in January 2021, hyped to 350p in a few months, and 11p today.
Some new issues are genuine cases of family control needing to advance to another stage, but many involve private equity backers selling out, and they know more than you do. A good rule of thumb is Do not buy a share until it has been listed for at least a year.
As for Arm, it is a great British business, but the prime minister knows that there is much more to investing than a successful IPO. He could have saved the political capital he has just spent, which is likely to be wasted. After all, there is plenty of work for him to do.
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