ALEX BRUMMER: Europe bids to slam the brakes on inflation

The European Central Bank is not known for bold moves. The decision to raise key interest rates by 0.75 percentage points is a victory for the hawks and reflects concerns about a tumbling euro amid fears that inflation could get out of hand.

Isabel Schnabel, the influential German member of the ECB’s governing council, has been agitating for more forceful steps for some time, in keeping with Berlin’s historic fears of monetary looseness.

Even after the latest decisive move, and ECB president Christine Lagarde’s pledge of more to come as Europe’s energy crisis intensifies, it still lags behind the US and Britain. 

The caution has reflected political turmoil in Italy, where returns on ten-year government bonds stand at 3.858 per cent – more than twice those in Germany.

In raising rates by three-quarters of a point, the ECB is following in the steps of the Federal Reserve in the US, which has raised rates by that amount at two successive meetings.

Where does this leave the Bank of England? So far it has been more careful. In August it raised the bank rate by 0.5 percentage points to 1.75 per cent amid a dire forecast of inflation jumping to 13.3 per cent by the fourth quarter. At next Thursday’s scheduled meeting there will be new arithmetic.

The Liz Truss fiscal expansion – to pay for domestic energy bills – of £100billion or more means that monetary policy will need to take more of the strain in subduing the cost of living.

This is in spite of the fact that the energy price limit should knock down the projections of headline inflation by up to 5 per cent.

Awkwardly, the detailed budgetary calculations won’t be seen until after the MPC meets. 

The direction of travel is clear and the temptation to speed up the pace of tightening to 0.75 percentage points will be strong. The quid pro quo for the Truss government’s robust backing of an independent bank may well be to take decisive action.

Repair Shop

There should be great relief that after the acrimonious £8bn takeover in 2018 of totemic UK engineer GKN by Melrose, the group’s innovative motor division is heading back to the London markets.

In a break with the past, the Melrose top team, headed by Simon Peckham, have decided to do the splits and float GKN Automotive early next year. 

The plan is to go ahead irrespective of market conditions. It should scrape into the FTSE 100 with an early valuation of more than £4billion.

Melrose became a stock market favourite by buying under-performing engineers, giving the private equity treatment by extracting costs and selling them on to overseas buyers. It operates a corporate version of the BBC’s The Repair Shop.

Incentive arrangements mean that top management has been among the highest rewarded in Britain.

The decision to bring the company to the London market, after the disappointment of the initial public offer for Glaxo’s healthcare arm Haleon, is to be commended.

GKN Auto is a global leader in the power drive for electric vehicles, which are among the fastest growing sectors of the UK and overseas car market. 

As a tech leader in the sustainable sector of the automobile market, it should fit well with investment funds.

Into the mix also goes the GKN Powder Metallurgy enterprise, at the cutting edge of developing magnet tech to be used in fuel cells. 

For the moment Melrose will be hanging on to GKN’s aerospace division, which makes advanced parts for defence and civilian aircraft, and has a heritage dating back to the Spitfire.

A sale is constrained by stipulations agreed with the Government at the time of the GKN bid. It could find itself the subject of an investigation under the Investment & Security Act were there to be a foreign buyer. There is still much to play for.

End game

The departure of top Treasury mandarin Tom Scholar, keeper of fiscal orthodoxy and hero of the financial crisis, has been swift and merciless.

Kwasi Kwarteng swung the axe on his first full day as Chancellor. The break with the tradition of continuity in the civil service is reminiscent of the departure of Terry Burns from the Treasury within a year of the arrival of Gordon Brown and Ed Balls in 1997. 

In the age of social media, life moves much faster.