ALEX BRUMMER: Sterling is on the precipice thanks to the Bank of England’s lousy job

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ALEX BRUMMER: Sterling is on the precipice thanks to the Bank of England’s lousy job

Many moons have passed since the value of the pound was considered the main driver of Britain’s economic policy. 

Nevertheless, a warning from strategists at Bank of America that sterling should be regarded as no better than an emerging market currency and could face an ‘existential’ threat is hardly in keeping with the national mood ahead of the Platinum Jubilee. 

After all, the star turn on Bank of England notes is the Queen! BofA’s epic scepticism about sterling reflects dissonance with both the Bank of England and government. 

Many moons have passed since the value of the pound was considered the main driver of Britain’s economic policy

Under the leadership of Andrew Bailey, the Bank’s credibility has suffered a serious setback. At the current 9pc rate, consumer price inflation in the UK is running at almost five times the 2pc target. The Bank was the first of the central banks to start raising rates after Covid-19. 

But it did so only after a series of zig-zags which left markets befuddled. Bailey and his compliant team of interest rate setters have been far too leisurely in raising interest rates. It became so political in the pandemic, when it saw saving jobs and business as the priority, that it lost sight of its core mission. 

Sterling has clawed back ground since last week’s energy market package from Rishi Sunak and stands at $1.26 in latest trading. It has tumbled 11pc against the dollar since the pandemic peak of $1.42 two years ago. Any fall in the pound against the currencies of our trading partners raises domestic prices. 

A 5pc drop in the pound adds 0.9pc to domestic prices. So it is a significant contributor to inflation. The BofA is as confused about the Old Lady of Threadneedle Street as most of us. It argues that it has become ‘hard to decipher and less transparent’ and declines to discuss the impact of Brexit on the supply side of the economy. 

That is unfair to Bailey given the huge impact of Covid and the Russian war on Ukraine on the supply side of the economy. Indeed, the Bank has worked hard to make sure that the City – a big source of foreign earnings and taxation – is not disadvantaged by Brexit. Neither is the idea that the UK is no longer attractive to inward investment borne out by events. 

Singapore’s sovereign wealth fund has just piled £3.3bn into UK student housing in a significant real estate transaction. And Britain is under siege from overseas buyers with companies as different as house builder Countryside and fashion group Ted Baker currently targets. 

Sterling has clawed back ground since last week¿s energy market package from Rishi Sunak and stands at $1.26 in latest trading

Sterling has clawed back ground since last week’s energy market package from Rishi Sunak and stands at $1.26 in latest trading

It would be foolish for the authorities to ignore Bank of America’s comments. Partygate has undermined confidence in the UK political establishment and the Bank has done a lousy job. Tougher and faster action on interest rates will be needed to douse inflation and stabilise sterling. 

FTSE fat cats 

Amid all the accounts of hardship from the consumer frontline as a consequence of inflation, one group is filling its boots. A survey of 2022 AGMs by Deloitte has found that the median pay of FTSE 100 chief executives reached £3.6bn in the 2021- 22 financial year, not far off a record high of £4m in 2017. 

So while most citizens are suffering a nasty squeeze on real incomes, boardroom chiefs are again gorging on bumper payouts from annual bonuses and incentive plans. Restraint shown during the pandemic, when business was protected from harm by furlough and loan guarantees, has not extended into the era of supply chain bottlenecks, inflation and war on Ukraine. 

'There can only be admiration for the way that Martin Sorrell dusted himself down after parting company with WPP'

‘There can only be admiration for the way that Martin Sorrell dusted himself down after parting company with WPP’

The High Pay Centre calculated recently that the gap between the pay of FTSE 350 chiefs moderated to 44 times that of the average colleague in Covid-19, but is surging ahead again. Serial sinners, such as car dealer Pendragon, deserve bloody noses at upcoming AGMs. 

Sorrell test 

There can only be admiration for the way that Martin Sorrell dusted himself down after parting company with WPP. He executed a rapid-fire series of 30 deals to turn his new group S4 Capital into a digital advertising powerhouse. In the first quarter, S4 reports ‘frenetic’ new business with gross profit up by onethird in spite of dispiriting global events. None of this will be relevant to shareholders until a fresh set of eyes at auditors PwC is able to restore confidence in the firm’s financial reporting.

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