On Wednesday the result of the most wide-ranging survey of British businesses since the Brexit vote was released. The purchasing managers’ index showed the sharpest fall in business activity for 20 years, and follows a slew of disappointing economic and business confidence indicators.
It was against this backdrop that the Bank of England’s monetary policy committee (MPC) announced the result of its latest interest rate decision. Would these apparently desperate times lead to desperate measures?
Having surprised most economists – and disappointed many investors – with its decision last month to leave borrowing costs unchanged, the MPC appears to have been swayed by growing fears of recession. This week, it voted unanimously to cut the official lending rate from 0.5% to a new all-time low of 0.25%. To help ensure that banks pass the benefits of the cut on to borrowers, the Bank also announced a ‘Term Funding Scheme’ to “help reinforce the transmission of the reduction in the Bank Rate to the real economy”.
Other measures include an extension to quantitative easing (QE), which will now be widened in scope to include purchases of corporate bonds.
However, even though the QE experiment has now been a feature of the UK economy for more than seven years, its efficacy remains open to debate. Increasingly, politicians and policymakers are calling for fiscal measures, such as increased government spending, to supplement monetary policy.
In the words of Aberdeen Asset Management Chief Economist Lucy O’Carroll, “The Bank really needed to announce this kind of combination of measures. But more for the sake of its own reputation than the economic benefits. Everyone was firmly guided towards expecting something this month, after July’s inaction. What will really count is whether the Chancellor provides a fiscal boost in the autumn. Monetary policy can’t do much more on its own.”
Turning Japanese
Chancellor Phillip Hammond might be inspired to look eastwards for inspiration. In the latest attempt to inject some growth into Japan’s moribund economy, Prime Minister Shinzo Abe announced a 28 trillion yen (£210 billion) package of stimulative measures. As well as extending QE, there is to be an additional programme of fiscal spending, which will boost infrastructure, and the provision of low-cost loans. However, some investors appeared unimpressed, having hoped to see the first instalment of ‘helicopter money’. In theory, this involves the printing of money by a central bank which is then distributed directly to individuals, rather than being spent on bonds or other assets, as is the case with quantitative easing.
Salad days
Sandwich and sausage-roll specialists Greggs served up a palatable set of half-year results, which showed the company benefiting from its shift towards a healthier range of snacks and lunches. On Tuesday it revealed a 3.8% rise in sales and a 16% increase in profits. The company also revealed it is considering selling sushi.
HSBC announced a 29% fall in first-half profits, which it blamed on the slowdown in China and concerns about Brexit. But the bank’s bosses kept investors happy with news of a $2.5 billion share buyback, which enabled the company share price to defy the downward momentum in the rest of the banking sector.
Overall, the FTSE 100 index was up by 0.2% over the week to the close of trading on Thursday.
And finally…
Swedish scientists have discovered what is believed to be some of the oldest cheese in the world. Divers excavating the royal ship Kronan, which was sunk in 1676 during the Dutch-Swedish Battle of Southern Öland, chanced upon the soggy snack inside a black tin jar on the seabed. Researcher Lars Einarsson said “It looks a bit like some kind of granular Roquefort cheese. It’s been in the mud, so it’s reasonably well preserved, but at the same time it has been at the bottom of the sea for 340 years”.
Given that the divers also discovered a diamond ring, and several gold coins among the de-Brie, they must have been hoping for grater things when they Caerphilly prised open the container. Never mind, there’s Stiltons of wreckage to examine.
Image credit: Marc Tielemans / Alamy Stock Photo
