As Rome burns, the Bank of England fiddles

On the macroeconomic front, last week saw more mixed signals, any one of which could influence the Bank of England’s thinking when it delivers its interest rate decision on 1 August.

The irony is that a week of mixed signals ended with no signal at all, as countries globally were slam-dunked on Friday by the ‘Biggest IT fail ever’, according to renowned fence-sitter, Elon Musk.

That was on the back of the CHAPS system briefly imploding on Thursday afternoon, causing all manner of misery for those who were moving home. Or at least planning to.

At this rate, it’s starting to feel like we won’t need an artificial superintelligence system à la Skynet to bring humanity to its knees, simply a chap called Gary in Runcorn with a Commodore 64.

Inflation and wage growth

Wednesday saw headline inflation stay at 2%, which you’d think would be seen as a positive and increase the chances of a rate cut next month.

Sadly, services inflation, a crucial indicator for the MPC, remained sticky at 5.7%. And the Bank of England is terrified of sticky.

Thursday, meanwhile, saw wage growth drop to 5.7% in the three months to May. Again, markets concluded that it didn’t drop far enough for the Bank of England to be convinced that now is the time to deliver that first rate cut — the rate cut that millions of businesses and households are crying out for.

The cupboard is bare

Their collective cry was encapsulated in harrowing real-world data published on Friday morning, which the Monetary Policy Committee probably missed due to the global outage. And will likely ignore anyway even when it does flicker up on their screens.

Official data from the Office for National Statistics revealed that retail sales fell by 1.2% in June, significantly worse than economists, those heavily remunerated Mystic Megs in the city, had expected.

The retail sector is on its knees, not because of the weather, the line countless official and ivory tower-based experts rattle off, but because people’s finances have been pummelled for too long.

In just four years we’ve had a global pandemic, double-digit inflation and a catastrophic mini-Budget that sent interest rates soaring. Bad weather wasn’t to blame for June’s retail sales data, but the fact that, for millions of stretched households, the cupboard is bare.

Grim insolvencies data

Friday morning also saw the publication of grim insolvencies data. 10,395 people entered insolvency in England & Wales in June 2024, 11% higher than in May 2024 and a massive 33% higher than in June 2023.

Meanwhile, the number of registered company insolvencies in England and Wales in June 2024 was 16% higher than in May 2024 and 17% higher than the same month in the previous year. 

The writing is on the wall for the UK economy, in bright red spray paint, but too many on the Monetary Policy Committee are unable to read it.

All the Bank of England appears to care about is inflation and that godforsaken 2% target. And even on that front, its track record is borderline shambolic.

An analysis by Newspage has found that the Bank of England has only managed to keep inflation at its official target 30% of the time since it gained independence in 1997. In short, our beloved central bank couldn’t hit a barn door with a banjo.

Rate cuts keep on coming 

On a more positive note, last week emulated previous weeks in that major lenders such as Halifax, TSB and NatWest continued to cut mortgage rates.

This will be music to the ears of borrowers and a further boost to the property market, which again showed its resilience in data published last week, rising 2.2% in the 12 months to the end of May according to the Land Registry.

Lenders appear to be pricing in a rate cut soon and are possibly looking across the pond rather than at spreadsheets. As we said last week, where the US Federal Reserve leads, the Bank of England tends to follow. And markets now see a September US rate cut as almost certain.

When that happens, the bungling Bank of England is likely to follow suit and give businesses and households the support they need. But for many, as the insolvencies data shows, it will be too little too late.

In the meantime, as Rome burns, Bank of England Governor Andrew Bailey and friends will continue to fiddle.

If you are looking for a new home, contact Nick or Teresa at Quarters Residential Estate Agents, Wokingham on 0118 466 0292 (call or WhatsApp) or e-mail [email protected] – we’re here to help!