Well, the Bank of England kept interest rates on hold.
Probably a smart move. As I said yesterday, it’s hard to see what an interest rate cut can do other than add to inflationary pressures. A cut in the base rate won’t make consumer borrowing cheaper. The UK economy is built on consumer borrowing. Therefore, the economy is in trouble, and the Bank can’t ‘save’ it. But it can stop the situation getting worse by at least trying to fend off inflation.
Of course, the pundits still haven’t figured that out. A short piece in The Times described the Bank’s ‘hold’ decision as “a blow to homebuyers and businesses struggling with rising costs.”
But right beneath that there’s a much more important story. One that shows the last bastion of disinflation in the UK is set to vanish…
Cheap clothes may soon become a thing of the past
As anyone who has to pay energy bills, taxes, fill a car, or pay for private education or healthcare knows, life in the
But there’s always been one thing you can rely on. Clothes are cheap, and getting cheaper. Alongside consumer electronics, anything with a ‘Made in
Now it looks like cheap clothes may soon become a thing of the past, like cheap food, and cheap petrol. Simon Wolfson, the chief executive of Next, warned that clothes prices may have to rise by up to 5% to offset rising costs from
That 5% may not sound like much, but we haven’t seen clothing price inflation in more than 10 years. And once the price of clothes starts going up – well, nothing will be getting cheaper any more.
Of course, Mr Wolfson might be going on the defensive a bit here. Next saw underlying sales fall by 9% in the 13 weeks to April 28. Worse still, sales at its Next Directory internet business – usually a compensatory source of solid growth – fell by 1%. Shares actually rose sharply on the news, but that just shows how negative investors were feeling on the stock.
It’s clear that Next is struggling, even given that retail is a tough sector to be in right now. And with sales growth clearly going to be a problem across the board this year, the focus will turn to preserving profits. By signalling the end of price-cutting, Next is warming up consumers to expect higher prices going forward, and other retailers may be only too glad to follow suit. Believe me, retailers wouldn’t be making a song and dance about rising prices if they thought they could just restrict the pain to their suppliers.
It’s not unlike the banks. With funding getting expensive, they’ve stopped chasing bulk mortgage sales in favour of chasing higher profits on individual mortgages. The same goes for retailers. Now that the overall levels of custom on the high street are likely to fall, they’ll focus on going for more profitable sales, rather than snaring more customers.
The slowdown is not a matter of perception
But Mr Wolfson’s not the only one talking about inflation. Debenhams last month warned that Chinese suppliers were looking for higher payments too. And I’ve got a lot of sympathy for Mr Wolfson. He spears this pathetic nonsense, bandied about by politicians and pundits alike, that the slowdown is all a matter of ‘confidence’ and ‘perception’. This patronising, ridiculous idea that the public is just a mass of lemmings, who have been scared out of spending by scaremongering headlines, rather than the fact that they’ve got no money.
“It’s not a matter of perception,” says Wolfson to The Times. “The problems with the economy are rooted in reality, higher mortgage bills, food bills, fuel bills, increased taxes. That is not a question of how people feel, but the income they have got to spend.”
The Bank of England can’t give people more income. And cheap credit is not the answer to our current woes – it was the cause of them. The Bank’s best bet is to try to keep prices stable while consumers retrench and rebuild their balance sheets. And for the moment, that means inflation should be the focus, not recession-avoidance.
Turning to the wider markets…
The FTSE 100 ended little changed, up 9 points at 6,270. The Bank of England’s decision to keep interest rates on hold saw the banks fall back. Pubs group Enterprise Inns also gave back some of Wednesday’s gains.
Across the Channel yesterday, the Paris CAC-40 rose 19 points to end the day at 5,055. And in
On Wall Street, US stocks moved higher. April retail sales data showed that consumers are still spending, but “shoppers clearly are migrating to discounters as opposed to full-line retailers. Wallets are getting lighter,” as Hugh Johnson of Johnson Illington Advisors told MarketWatch. The Dow Jones rose 52 points to end at 12,866. The broader S&P 500 closed up 5 points, at 1,397, while the tech-heavy Nasdaq gained 12 points to close at 2,451.
In Asia this morning, Japanese stocks fell back, with the Nikkei 225 shedding 287 points to close at 13,655, as car giant Toyota warned that profit will probably fall for the first time in ten years, by a hefty 27%. Meanwhile, tyremaker Bridgestone said that its first quarter earnings had been hit by rising raw material costs.
Crude oil was trading at $124.25 in
Spot gold was trading at around $888 an ounce this morning, while silver was trading at $16.99. Platinum traded around $2,066.
Turning to forex, sterling was trading at 1.9546 against the dollar, and at 1.2627 against the euro. The dollar was last trading at 0.6462 against the euro and 103.04 against the Japanese yen.
This morning, troubled retailer HMV has said that pre-tax profits for the year to April 26th, will hit the upper end of City hopes. Like-for-like sales grew 10.1% in the 16 weeks to April 26th, and by 7.3% across the year.
Our recommended articles for today…
Why the City bonus culture is here to stay
– Bankers are under attack on all sides by the Bank of England, the economics profession and now by the Church itself. But despite this, nothing much is likely to change, writes Tom Bulford. To read more on why the finance sector will continue to draw in our best and brightest, click here: Why the City bonus culture is here to stay
Get ready for a biotech buyout boom
– Big Pharma companies have cash and want drugs. And for the right price, biotech firms will be happy to sell to them, says Marc Lichtenfeld. To find out why biotech stocks could become a rich addition to your portfolio, click here: Get ready for a biotech buyout boom
Turning to forex, sterling was trading at 1.9546 against the dollar, and at 1.2627 against the euro. The dollar was last trading at 0.6462 against the euro and 103.04 against the Japanese yen.
This morning, troubled retailer HMV has said that pre-tax profits for the year to April 26th, will hit the upper end of City hopes. Like-for-like sales grew 10.1% in the 16 weeks to April 26th, and by 7.3% across the year.
Our recommended articles for today…
Why the City bonus culture is here to stay
– Bankers are under attack on all sides by the Bank of England, the economics profession and now by the Church itself. But despite this, nothing much is likely to change, writes Tom Bulford. To read more on why the finance sector will continue to draw in our best and brightest, click here: Why the City bonus culture is here to stay
Get ready for a biotech buyout boom
– Big Pharma companies have cash and want drugs. And for the right price, biotech firms will be happy to sell to them, says Marc Lichtenfeld. To find out why biotech stocks could become a rich addition to your portfolio, click here: Get ready for a biotech buyout boom
Turning to forex, sterling was trading at 1.9546 against the dollar, and at 1.2627 against the euro. The dollar was last trading at 0.6462 against the euro and 103.04 against the Japanese yen.
This morning, troubled retailer HMV has said that pre-tax profits for the year to April 26th, will hit the upper end of City hopes. Like-for-like sales grew 10.1% in the 16 weeks to April 26th, and by 7.3% across the year.
Our recommended articles for today…
Why the City bonus culture is here to stay
– Bankers are under attack on all sides by the Bank of England, the economics profession and now by the Church itself. But despite this, nothing much is likely to change, writes Tom Bulford. To read more on why the finance sector will continue to draw in our best and brightest, click here: Why the City bonus culture is here to stay
Get ready for a biotech buyout boom
– Big Pharma companies have cash and want drugs. And for the right price, biotech firms will be happy to sell to them, says Marc Lichtenfeld. To find out why biotech stocks could become a rich addition to your portfolio, click here: Get ready for a biotech buyout boom