News, Culture & Society

ALEX BRUMMER: Borrowers set for a shock amid rush to higher rates

The rush to higher interest rates: Mortgage holders and other borrowers should prepare for a shock, says ALEX BRUMMER

Markets don’t generally look to Sweden’s Riksbank for leadership on interest rates, even though it has a heritage older than the Bank of England.

A full percentage-point rise to 1.75 per cent, as Stockholm grapples with a 9 per cent inflation rate, reflects a toughened approach to monetary policy across the G20.

The Riksbank intervention comes amid political uncertainty as a coalition government, which includes the far-Right Sweden Democrats, is formed.

Inflation fight: The Bank of England’s interest rate setting Monetary Policy Committee may well feel the need to go bolder than the half-a-point rise many predicted

The new Swedish administration has a tax cutting agenda. It shares that with Liz Truss, who is making it clear that when it comes to UK taxation everything is under review. 

We know already the national insurance hike is to be spiked along with next year’s rise in corporation tax.

When Truss was chief secretary at the Treasury under Philip Hammond her radical instincts were suppressed by the mandarins. Now she is taking her revenge.

Among the consequences of loosening fiscal policy is that monetary policy will have to take more of the strain. In the US, the Federal Reserve is forecast to raise its key federal funds rate by at least 0.75 of a percentage point today from the current 2.25 per cent to 2.5 per cent range. There are now some market forecasts that US rates could go as high as 4.5 per cent by early next year.

When it comes to global finance, the UK is far from being an island. The Bank of England does not seek to manage the exchange rate. 

But at or near its 1985 lows against the dollar it would be surprising if it were not paying attention.

The Bank’s interest rate setting Monetary Policy Committee will – if practice holds – be briefed by the non-voting Treasury presence on the direction of the upcoming mini-Budget.

The £140billion package of help for energy bills will have a profound effect on consumer prices, knocking them down by as much as 4 per cent to 5 per cent. 

Rescinding the national insurance surcharge will also ease the squeeze on the cost of living.

Nevertheless, with borrowing and debt bubbling up, the Bank, which was so timid at the start of the new inflation spiral, may well feel the need to go bolder than the half-a-point rise many predicted. The yields on the five-year and two-year UK Government stocks are surging.

Mortgage and other borrowers should prepare for a shock.

Sporting life

The changing of the guard at Frasers looks like no change at all.

Mike Ashley will still hold a 69 per cent stake in the company he founded as Sports Direct and doubtless will enjoy the occasional pint with his son-in-law Michael Murray who now has his hands on the tiller.

Ashley’s departure will be seen by critics as a good thing. His free-booting management clashed with governance mavens and the treatment of some colleagues at the Shirebrook warehouse in Derbyshire was disgraceful. 

Yet one cannot but admire his entrepreneurship. He has been the buyer of last resort on the High Street, snapping up franchises and brands from Evans Cycles to House of Fraser which otherwise might have died.

He has never been scared to invest in his suppliers either and at various times has held stakes in Adidas and more recently Hugo Boss. His no-frills retail model may have upset some sensibilities. 

Turning the ground floor of posh sports emporium Lillywhites into a cheap T-shirt and tracksuit joint has been seen as sacrilege.

But in an era when so many High Street enterprises have perished on the pincer movement of business rates and online rivals, he has survived. Indeed, Frasers, with its heavy discounting, is well matched to an era of squeezed incomes.

If he has really vanished over the horizon he may be missed.

Creative tension

Channel 4’s ownership structure and business model has always been curious.

Technically owned by the Government, its income largely comes from advertising and selling on its programmes commissioned from independent producers. 

Less than friendly coverage of Tory policies on its news and documentary output made it an easy target for Boris Johnson’s government.

The actual sales process, being conducted by JP Morgan, may be proving more work than it is worth in current uncertain markets. The likelihood is that C4 would end up in the hands of ITV or an overseas trade buyer.

That would not be the best outcome for British creative industries.

***
Read more at DailyMail.co.uk