When does the Bank’s relaxed stance become complacency? | Nils Pratley

With inflationary pressures all too visible, Threadneedle Street could perhaps be slightly more worried

Inflation is “likely to exceed 3% for a temporary period”, says the Bank of England’s monetary policy committee, which would prefer the emphasis to be put on the word “temporary”. The rate-setters, or most of them, are sticking to their script: once the inevitable strong period for growth and inflation is out of the way, both readings will fall back, so there’s no need to be alarmed.

The benign view has a lot going for it, of course. Inflation plunged last year during lockdowns and the reopening phase was bound to produce a spike of some size. May’s inflation reading was 2.1%, a relative surge from just 0.7% in March. But if the peak proves to be 3%-ish, the “transitory” narrative – central bankers’ favourite word these days – would still be intact.

inflation 10-year

There is a point, though, at which being relaxed about short-term inflationary pressures starts to look like complacency. In the guts of the MPC minutes, it was possible to spot a few worries about how a temporary spike could turn into something more persistent. “On one view, forthcoming data had the potential to provide an early indication of sustained economy-wide inflationary pressures,” said one passage. But that was about it.

Only a month ago the Bank was expecting inflation to peak at 2.5% and now it is talking about 3%. Meanwhile, oil is as high as $75 a barrel and inflation in the US stands at 5% as the administration’s big spending programme gets going. You’d expect Threadneedle Street to be slightly more worried by now that its relaxed view could be wrong.

Private equity raiders should be pushed a lot harder

When the board of St Modwen Properties last month recommended that shareholders accept private equity firm Blackstone’s bid at 542p a share, or £1.24bn, it said it had reached its decision after receiving “multiple proposals” and had “negotiated over an approximately 10-week period”. Give us a round of applause, please, the directors seemed to be saying, for being tough negotiators.

What they got instead was a raspberry from two of their major shareholders, JO Hambro and Janus Henderson, who went public with their view that 542p wasn’t enough. The pressure from the revolting shareholders has now succeeded in prompting Blackstone to up its offer to 560p.

Examples of bidders bidding against themselves when they already have a board recommendation are extremely rare. The increase in the bid – 3.3% – may not sound much but it’s still a meaningful slug to have left on the table in the original negotiation.

Yes, if the deal now happens, the owner of retail parks and warehouses, with a sideline in housebuilding, will change hands at a premium of 21% to the estimated value of its assets, rather better than the discount to asset value at which the shares have traditionally traded. On other hand, warehouses are hot items in today’s property sector and you only get to sell the company once. St Modwen’s board ought to be embarrassed.

Let us hope other boards (looking at you Morrisons) are watching. The private equity raiders, currently flush with enormous pots of capital, can often be pushed further than you might expect.

EE’s bad call on roaming charges

If UK travellers to the European Union are prepared to pay through the nose for Covid testing kits, they’ll probably swallow £2 a day in roaming charges to use their mobile phones. That, of course, was definitely not EE’s explanation for reintroducing a daily charge for new customers to use their data, voice or text allowances in the EU. But the official version was no less cheeky.

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The move, apparently, “will support investment into our UK based customer service and leading UK network.” Come on, BT, owner of EE, has just had an enormous handout from the chancellor in the form of “super deductions” on corporation tax to encourage infrastructure spending in the UK. The timing looks terrible.

A fixed daily charge is not the same as the old-style roaming tariffs that could hit a user with “bill shock” on return home. But the mobile networks all said they had no immediate post-Brexit plans to reintroduce the roaming charges, which Brussels banned within member states in 2017. Six months must count as a long time in the fast-moving world of mobile telephony. Very poor.


Nils Pratley

The GuardianTramp

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