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Dairy do it?
16 Sep, 2022
It’s been an unsettling week I think as we digest change and our new order, seeing our day-to-day normal transition into the history books, and being reminded of quite what an astonishing woman the Queen was. The present normally trickles into the past, but this week it has felt like the short sharp jolt you’d get if you accidentally changed into 3rd gear not 5th.
Away from Westminster, we see economic woes as the poor old pound falls to its lowest level since 1985. For context, that’s when The Power of Love by Jennifer Rush was Number 1 and Margaret Thatcher was the PM!
What’s going on?
We had weaker retail sales data than expected and John Lewis has warned staff again that they may not receive a bonus this year. 2021 was the first time since the 50s that this bonus had not been paid.
Essentially, we have bought less stuff because inflation’s biting, no-one feels very flush, and so economists worry that the anticipated recession will be a bit nastier and last for a bit longer than they might hope.
Those sitting outside the UK think other economies look a bit healthier – a better destination for their investment and so they don’t want to come here, they therefore don’t need pounds to buy our things, and when people don’t want something, its price falls – that is why sterling has fallen to about $1.14 today. It is the economic equivalent of Billy No Mates.
All eyes on the Bank of England
Next week the Bank of England meets to make a decision on interest rates.
One the one hand they have inflation which is nearly 5 times higher than its maximum target of 2%. As well as fuel, food prices – notably eggs, milk, cheese and dairy products - are the principal culprits.
This suggests they should put interest rates up even more to curb our enthusiasm for borrowing money to consume things and build things.
However, on the other hand, against this roaring inflation we’re teetering on the edge of recession. So smack us too hard with interest rates and you could push us over the edge into economic freefall.
Most people are expecting a 0.75% increase which would take rates up to 2.5% - up from 1.75% today. It’s not a very easy balancing act for the Governor. Dair-y put rates up aggressively?
We’ll report back next week. Whatever you’re up to, have a good weekend everyone.
Holly
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