Falling US inflation is a present for Andrew Bailey, says ALEX BRUMMER

All those homeowners and businesses wishing for a June cut in the Bank of England’s base rate have been given fresh hope.

The message from across the Atlantic is that US inflation is moderating and the booming post-pandemic economy may be taking a breather.

Strictly speaking, the UK and the eurozone have no need to pay attention to US inflation, output and monetary policy.

But it is impossible to ignore sentiment in Washington and on Wall Street.

A constraint on the Bank of England lowering the bank rate from 5.25 per cent to 5 per cent as soon as next month, has been the stubbornness of US prices.

Time for action: Governor Andrew Bailey has publicly made the case that Britain does not have to move in lockstep with America

Expectations that the key US key federal funds rate would remain on hold have kept the dollar strong. 

A weakening of sterling against the dollar affects Britain’s cost of living because a large proportion of imports, most notably oil and natural gas, are priced in the US currency.

The latest American data shows headline consumer prices and core inflation (which excludes energy and food) dropping.

With cost of living pressures in the US easing – the headline rate of inflation dipped to 3.4 per cent in April from 3.5 per cent in March – markets are betting that the US central bank will cut its key interest rate range as soon as September.

That should give central banks elsewhere room to manoeuvre.

Governor Andrew Bailey has made the case that Britain does not have to move in lockstep with America on the grounds that our inflation is rooted in the supply side of the economy, notably energy prices.

In the US, the commanding factor has been strong consumer demand and a lively jobs market as the recovery gathered pace. There are other forces at work.

Monetary policy is not a precise art and Bailey was on the wrong side of history when prices surged in 2021 and he kept interest rates too low for too long. 

As former Federal Reserve chairman Ben Bernanke noted in the House of Commons yesterday, the Bank’s predictions have been off the mark because, in the recent past, it failed to take account of factors such as the energy subsidies.

The concern now is that the interest rate-setting Monetary Policy Committee (MPC) is mistaken again and holding borrowing costs too high as energy costs plummet.

By so doing they will have inflicted unnecessary pain on consumers and businesses, and damaged confidence and recovery. The MPC needs to end the indecision and reduce rates at next month’s gathering.

Fighting back

The London Stock Exchange Group (LSEG) has been in the headlights in recent months.

Every exit from the FTSE 350 has been seen as a mortal blow and the failure to capture initial public offerings (IPOs), such as Arm Holdings, taken as a symbol of the City’s decline.

The IPO drought could soon be over should the Asian-based fast fashion star Shein follow computer maker Raspberry Pi to market. 

Unilever’s ice cream arm and De Beers sit in the wings. It is a mistake is to think of the LSEG as simply an equity market. There is much more to it than that.

It is a data powerhouse, operator of Europe’s biggest derivatives clearing house, has currency and fixed interest trading platforms and is the main rival to Bloomberg on trading desks around the world.

Its status as a pillar of the Square Mile was underlined when investors sold a £1.6billion stake in the group this week, ending a shareholding involvement of Thomson Reuters. The LSEG will remain a customer for Thomson Reuters news.

Remarkably the share sale was achieved at a premium, demonstrating both the attraction of LSEG stock and the liquidity of London. Way to go!

Steel nerves

If BHP thought slumbering Anglo American would be easy meat, it miscalculated.

Top 50 investors and the South African authorities have rallied to its defence.

Chairman Stuart Chambers and Anglo are determined to show some shock and awe. 

First asset out of the door looks likely to be the controversial, but valuable, steel-coking coal operations at a decent price of as much as £4.75billion.

That’s more than the Royal Mail!