Economic decision-making in wartime is hard. This is particularly true when the conflicts involve energy suppliers as is the case now, and was true in 2022.
The war on Iran and its reverberations across the Arabian Gulf are having a profound effect on the cost of petrol at the pumps and wholesale prices of gas and electricity.
The danger the US Federal Reserve confronted last night – and Bank of England interest rate-setters face today – is judging how quickly the energy price shock feeds into the sinews of the economy.
In Britain, where public sector unions have been generously rewarded since Keir Starmer took office, risks of a wage spiral can never be dismissed.
The response of the Fed and the Bank of England to Covid and Russia’s war on Ukraine was to regard the inflation risk as transitory.
Both were wrong, and credibility in G7 central banking was undermined. Normalising interest rates, to stimulate recovery and jobs, has been a long haul.
Iran fallout: Oil and gas prices are highly volatile as a result of Iran blocking tankers sailing through the Strait of Hormuz
The delays have been reflected in the US by Donald Trump’s undignified attacks on Jerome Powell, now on his last lap as Fed chairman.
The only doubt about the Fed’s decision to hold its key interest rate range at 3.5 per cent to 3.75 per cent is whether this would be enough to curb inflation.
Powell, who has been brave and firm in the face of Trumpian threats, has nothing to fear now.
Accusations of corruption over the refurbishment of the Fed’s estate in Washington have died a death. And in two months it will be Kevin Warsh walking the White House high wire.
In Britain, the pressure for lower rates has been more subtle. Starmer and Chancellor Rachel Reeves chose to take credit for the interest rate cuts and the benefit to homeowners.
That narrative is over, with the best mortgage offers in abeyance and two-year fixes above 5 per cent. An already-divided Monetary Policy Committee will not vote for a cut now.
Oil and gas prices are highly volatile but the speed with which they have zipped up and the potential for further rises, as the Strait of Hormuz is blocked, must be taken seriously.
The Bank will likely sit on its hands.
The courageous thing to do would be to relieve growing liquidity pressures in financial markets and anticipate a recession risk by lowering borrowing costs from the current 3.75 per cent.
Cutting to the bone was the Old Lady’s response to lockdown. It’s not going to happen again.
Food waste
The direction of travel at Unilever has been clear for some years. Focus has been on fast-growth beauty, personal care and well-being brands.
There has been a turn away from food. Spreads, including Flora, were sold to KKR in 2018. Tea brands Lipton and
PG Tips went to CVC in 2021. Magnum was hived off last year. Since then, there have been lesser disposals, such as Graze and Vegetarian Butcher.
Marginal regional food brands, such as British favourites Marmite and Colman’s, are on the endangered list. Fears of a sentimental backlash kept them safe.
Until now it was thought that Hellmann’s and Knorr, which are fast-growing food brands with global reach, would remain core.
Chief executive Fernando Fernandez, one suspects urged on by activist Nelson Peltz, is now reported by Bloomberg to be considering the sale of all the food brands.
Efforts would be refocused on Port Sunlight on the Wirral and innovative beauty and health care.
It has been quite a journey since Kraft Heinz sought to buy the group a decade ago. The danger is that a slimmed-down Unilever could become more digestible for foreign plunderers.
Copper-bottomed
Since the world’s largest miner BHP moved its share listing from London to Sydney it has been harder to track.
The ambitions of Canadian chief executive Mike Henry to become the king of copper were thwarted by determined resistance from target Anglo American.
BHP’s chosen Aussie successor, Brandon Craig, might find deal-making irresistible as the world scrambles for more copper, precious metals and rare earths to fire up the AI revolution.
Should central banks keep rates high even if it means more pain for homeowners and workers?
DIY INVESTING PLATFORMS
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