Powell reveals the best way – now Bank of England should observe: ALEX BRUMMER

The Bank of England plays down the notion that American interest rate policy has any direct impact on our own. 

It argues that British inflation largely has been caused by supply issues after the pandemic and Russia’s aggression in Ukraine.

Until last night, US rates remained at a 23-year high because inflation has been driven by strong consumer demand and business resilience.

Rate debate: The Bank of England argues that British inflation largely has been caused by supply issues in the shape of the pandemic and Russia’s aggression against Ukraine

It will be hard for Britain’s interest rate setting Monetary Policy Committee (MPC) not to keep a weather eye on last night’s bold decision by chairman Jerome ‘Jay’ Powell at the Federal Reserve to cut its key interest rate by half a percentage point to a new range of 4.75 per cent to 5 per cent.

The first change in four years comes amid softening of US employment and a slowing economy. 

The US central bank mandate is to deliver inflation at 2 per cent without jeopardising jobs and growth. Two more quarter-point reductions in borrowing costs are now expected this year.

Technically, a sharp US cut should keep the pound firm against the dollar, itself a barrier against inflation. 

Ahead of today’s decision by the MPC there was almost unanimous belief among City economists that there would be no change in bank rate over here. 

However, as the decision came closer some market operators have been anticipating a surprise cut.

The latest consumer prices figures suggest that inflation in the UK has settled at or around the target of 2 per cent. 

Service price inflation caused some concern, but the uptick to 5.6 per cent was largely driven by what the public has now come to know as ‘dynamic pricing’ in the airlines sector.

The danger in the UK, as in the US, is that prolonging an era of high interest rates, which puts a crimp on consumers, the housing market and business borrowing, could become self-defeating by crimping expansion. 

That in turn increases the pressure on the public finances. That is why everyone – Government and the private sector – should welcome a further reduction in borrowing costs.

Retail therapy

Quite a switch. Two of the more impressive retailers of recent decades have done an effective job swap. Stuart Rose becomes interim executive chairman of grocer Asda. 

Archie Norman, the creator of modern Asda before it fell into private equity hands, is chairman of Marks & Spencer, where Rose was the last boss to achieve profits of £1billion back in 2007.

The current state of the two groups offers important ownership lessons. The entrepreneurial Issa brothers, backed by TDR Capital and a debt pile, have presided over the deterioration of Asda. 

Meeting the interest rate bill took priority over investment in the brand, leaving the door open for German no-frills retailers and rivals Tesco and Sainsbury’s to peck away at market share.

The private equity takeovers of Asda, owned by Walmart, and listed Wm Morrison were ill-timed. They piled on the leverage just as interest rates soared on the back of Covid-19. 

Morrisons is making a fist of coming back, but Asda has been distracted by dissent among the owners, with Mohsin and Zuber Issa not always beating as one. 

Now Mohsin is stepping down, and Rose and TDR’s Rob Hattrell are taking the helm until a more permanent chief executive can be identified.

M&S’s comeback, which has taken more than a decade, has happened in full public view. Private shareholders and the late Paul Myners, then chairman, opposed a debt-fuelled bid from Philip Green two decades ago, and saw him off the field of battle.

A brave strategy adopted by Norman and executed by Steve Rowe and now Stuart Machin saw dozens of old city centre M&S stores shuttered, a new generation of retail park outlets take their place and a tight focus online, food-only stores and better fashion.

My conclusion is that listed ownership is far preferable to private equity. That doesn’t help injured Asda.

Big bucks

How can anyone, firms and countries alike, ever compete with the new trillionaires of finance? Microsoft and super fund manager BlackRock have come together to create a $30billion (£23billion) pot to invest in artificial intelligence, data centres and energy projects. 

That places the ambition of Chancellor Rachel Reeves and the National Wealth Fund in the shade.