UK limbers up for rate cut… and not before time, says ALEX BRUMMER
Andrew Bailey has had little to celebrate of late. He has suffered the slings and arrows of the barbed Bernanke report on Bank of England forecasting and indiscriminate fire from former Prime Minister Liz Truss.
Amid the furore surrounding the Bank of England governor, his eyebrows can still work their magic.
At last week’s finance sessions in Washington, Bailey was clear that it is possible for the UK to plough its own furrow when it comes to setting interest rates.
Britain’s cost of living pressures have been created by supply-side factors, notably energy costs post Russia’s war on Ukraine. In contrast, in the US, a buoyant economy slowed progress in taming inflation.
This should mean that Britain could move ahead of America’s Federal Reserve in cutting rates.
Turning point? Bank of England governor Andrew Bailey was clear that it is possible for the UK to plough its own furrow when it comes to interest rates
Markets have ingested the message and interest rate reduction prospects have leapt ahead in latest trading.
Markets are signalling a first cut British rates from 5.25 per cent by a quarter of a percentage point at its August meeting and two cuts in base rate by year end.
The two-year gilt yield also has dropped. Both home owners and businesses have something to look forward too.
Equities have been bolstered by – so far – no escalation of Israel-Iran violence, although conflagration in Gaza continues.
Bailey’s next battle will be at the Monetary Policy Committee. As governor, it is up to him to set the tone at meetings of the interest rate setting committee.
He probably could persuade Bank insiders but the external hawks, including Jonathan Haskel from Imperial College London, might present a tougher obstacle.
Not before time, there is recognition that it is time to take the foot off the monetary brakes.
High notes
Who would have thought it: a bidding war for Merck Mercuriadis’s song fund Hipgnosis.
As the group struggled for survival earlier this year, it looked as if some kind of run-off was the most likely outcome.
Hipgnosis is among my portfolio of ‘hobby’ shares, which has gone disastrously wrong. Hotel Chocolat was saved from humiliation by an opportunist takeover by the secretive Mars family. The Brighton Pier Company, bought for 100p, now trades at under half that.
Mercuriadis, a former roadie, had a great story to tell when he founded Hipgnosis. His long record in the world of popular music gave him access to the big players, and their songbooks offered a new asset class.
My interest in songbooks has been heightened by my son Justin, an academic, founder of the website VietnamWarSongs, which catalogues and collects protest music.
Hipgnosis was in the forefront of signing up artists such as Shakira, Jay-Z and Justin Bieber.
As the space became more crowded, and the giants of the industry recognised there was value in royalties, the price of new signings surged. Mercuriadis found himself paying ever higher prices for songbooks and the economics fell apart.
He also faced conflict of interest claims over his relationship with private equity Blackstone as Hipgnosis Song Management acted as adviser to the group with an option to purchase the entire songbook of the original fund.
The arrival of Blackstone, competing with Concord Chorus, must be good for shareholders. The chances of the bidding war providing a profitable exit route from a fund once valued at 150p a share is unlikely.
Nevertheless, the Blackstone offer of worth $1.24 (just over 100p) a share cash provides a decent exit route. It would be terrific if Concord came back with a counter or one of industry giants saw an opportunity.
An honourable escape route is the best that this hobby-owner can hope for.
Post haste
The effort by Royal Mail’s owner to turn back an unwanted bid from Czech billionaire Daniel Kretinsky by requesting a speedy response from regulator Ofcom to proposed delivery reforms could be a double edged sword.
If proposals for a premium and pricey fast delivery service and slow second class get the go ahead then parent International Delivery Services could become an even more attractive bid target.
The Government needs it be known: mail not for sale.