In a political and economic world that currently seems so opaque and uncertain, one thing is crystal clear – the Bank of England is facing a tough task in setting its policy over the coming weeks and months.
Last week we were pleased to welcome the Bank’s North West agent, Ken Clark, to a session held in conjunction with Professional Liverpool, hosted by RSM at their Chapel Street offices. The session welcomed forty businesses and was held under Chatham House rules, and whilst I’m certainly not about to breach that convention, there are elements I am happy to share that are already within the public domain.
The overriding sense from our morning briefing was how the Bank must balance an enormous amount of data and variables in order to map out its monetary policy, including its monthly interest rate decisions. Indeed, the nature of its challenges reflect those facing businesses across the UK and here in the Liverpool City Region – we would all welcome more clarity.
With inflation at 3.8%, way above its 2% target, the Bank must continue to use its key lever of interest rates to try and keep the rate of price rises under control and ensure the UK economy remains an attractive place for investment and growth.
Downward inflation has allowed the Bank to cut the base rate from 5.25% to 4% in the last 15 months. Despite hopes it might have fallen again in November, it was held following a split 5:4 vote by its Monetary Policy Committee, as concerns linger around the stubbornness of inflationary pressures such as the price of services, weak consumer spending, rising unemployment and sluggish economic output.
The Chamber’s Quarterly Economic Survey results and our daily conversations with business, make clear that government policy on employers NICs and the National Minimum Wage have been a primary cause of a paralysis affecting many firms, who are understandably reluctant to make new hires, invest in new plant or grow their footprint when they find themselves in the crosshairs of Whitehall fiscal policy. This has also skewed traditional forecasts, with the overall costs of employment now diverging further from wage costs.
Christmas will be a crucial bellwether for many sectors in the Liverpool City Region, not least hospitality, where operators will be hoping that festive cheer encourages consumers to eat, drink, stay and spend. If not, fears of more closures or downscaling may become a sad reality.
Of course, between now and then we have the small matter of the Budget. Uncertainty abounds, kites are being flown and tangled, and the Bank is effectively as in the dark as the rest of us. It can use its economic expertise to forecast the outcomes of different scenarios, and agents such as Ken will independently feed back the mood of businesses to the Bank’s governors and by proxy, to government and the Office for Budget Responsibility, but its status as an independent central bank rightly means it must continue to recalculate its forecasts, like many business owners, in the run-up to November 26.
While the widely-mooted income tax rise may have been unsavoury for many, it might also have been the stimulus the Bank needed to cut the base rate again before the year’s end. However, that particular policy seems to have become the latest addition to the growing list of the Chancellor’s flip-flops, leaving the tax take to potentially fall elsewhere.
Businesses need certainty and making predictions seems a futile exercise. So, whatever the Budget brings, let’s hope it is the last state intervention for some time and that business owners receive the clarity, space and support they need to just move forward. A period of stability may also encourage the Bank to continue to cut interest rates, making life less expensive for us all.
