Financial markets are never the best readers of the political runes. But the drubbing that Boris Johnson took in the Tiverton and Wakefield by-elections left trading largely unaffected.
In spite of the relentless talk about the cost of living and a summer of discontent, British consumers for the moment refuse to be blown off track.
A message from banks, worrying about credit going bad in the future, is that it isn’t happening yet in spite of headline inflation of 9.1 per cent and gently rising interest rates.
Battered: The drubbing that Boris Johnson took in the Tiverton and Wakefield by-elections left trading largely unaffected
Spending on holidays is roaring away, with many citizens (and businesses) still cushioned by credit balances in current and savings accounts built up in the pandemic.
Retail sales data for May was down by 0.5 per cent, less than the predicted 0.7 per cent, with much of the decline focused on foods.
Consumers may be shopping more carefully for groceries but are still spending in other shops including department stores.
The widely followed Purchasing Managers’ Index, published this week, shows that for all the anxiety about output it is holding up reasonably well in the UK with a flat reading of 53.1 per cent.
That is consistent with the economy growing at a 0.4 per cent clip in the second quarter. In contrast, recession fears are hardening in the eurozone where bond yields are tumbling.
Reversing its recent path, the pound actually climbed 0.25 per cent to $1.2294 in latest trading, and looked unfazed by the dreadful byelection outcomes.
The inflation problem is not going away and energy supplies will be a dominant theme at this weekend’s Group of Seven heads of government summit in Bavaria.
Amid the calls for Boris Johnson’s government to do more, it is easy to forget that the Chancellor Rishi Sunak is pumping a further £37billion into the economy to ease the burden of fuel bills on the least well-off and take some of the sting out of the 1.25 percentage point national insurance hike. So far, the Bank of England’s gradualist approach to raising interest rates – a quarter of a percentage point at a time to 1.25 per cent – is not scaring the horses. A buoyant housing market and moderate consumer spending show that, for all the political spin, the UK economy is not subsiding just yet.
Private grief
Early days it may be, but private equity ownership of supermarket chains Asda and Morrisons is not delivering in terms of market share.
Both have experienced sharp declines over the last year as the German grocers Lidl and Aldi, with their focus on low prices, continue to find favour with shoppers.
This may be a case of Asda and Morrisons maintaining margins rather than engaging in a costly price war. After all, like the UK government itself, they have debt to service, bonds to refinance and interest rates are not treating them kindly.
For all its bravado – Japan’s Toshiba is the latest target – private equity is showing signs of wear and tear. The disturbing practice of selling assets to each other is described by French fund manager Amundi as a ‘Ponzi scheme’.
As questionable is a new twist in which private equity bosses hold on to companies they have bought into by selling the assets to themselves. They do this by setting up so-called ‘continuation funds’ and charging a fee for doing so.
Asset manager Lazard calculates that there were £42billion of such transactions last year. This allows the private equity barons to double-dip when collecting charges.
There may be no better place to start a governance clean-up.
Ultra vires
The complexity of arrangements drawn up by Business Secretary Kwasi Kwarteng and officials at the Department for Business, allowing Cobham-Advent to proceed with its bid for Ultra Electronics are farcical.
If the Government is really so concerned about leakages of national security to foreign powers and a loss of R&D capacity to the British economy, it should have proscribed the deal. No trust can be placed in Advent’s record as a safe owner, and it is easy to see the undertakings being chiselled away by lawyers over time.
Approval, albeit with conditions, sets a terrible precedent for the ghouls swooping on UK aerospace, satellite, engineering and semi-conductor companies.
The National Security and Investment Act was meant to end this drain on the nation’s intellectual property.
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