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ALEX BRUMMER: Inflation fillip for the Footsie

Rishi Sunak’s pledge to cut inflation in half this year looks more than safe. It was a misleading undertaking anyway, in that controlling prices has been outsourced to the Bank of England since 1997.

Even though the headline consumer prices index (CPI) fell to 10.1 per cent from 10.5 per cent in January, it is still five times higher than the Bank’s 2 per cent target.

Encouragingly, services sector inflation, closely monitored by the Bank, is edging down and slipped from 3 per cent in December to 2.8 per centin January. The growth in the money supply has also slowed.

Out of his hands: Rishi Sunak’s pledge to cut inflation in half this year is a misleading undertaking, in that controlling prices has been outsourced to the Bank of England since 1997

The biggest contributors to the decline in UK prices are the transport and hospitality industries. Booze and tobacco prices went in the opposite direction.

Analysts appear convinced that both core and headline inflation are now past their peak although the UK prices are still running hotter than the US and eurozone.

CPI is expected to fall as lower fuel costs and the end to supply chain bottlenecks come through. 

And the Government has been reasonably successful in holding up the tide of public sector pay claims, in spite of strikes. The big question for homeowners is: what does this mean for mortgages?

Two-year gilt yields are approaching their highest levels since October, although they eased slightly in latest trading.

The five and ten-year yields remain anchored well below bank rate, at 4 per cent.

There is a glint of confidence that UK rates are in sight of their peak and there may be better deals ahead. 

That, together with the rally in natural resources stocks, briefly helped drive the FTSE 100 above 8000 for the first time: another silver lining.

Venkat’s task

No one ever said that running an investment banking arm was going to be easy. Barclays has stuck with it, and to its credit remains the most solid player in Europe as former rivals such as Deutsche Bank and Credit Suisse have been forced to retreat.

Yet in spite of a sharp drop in investment banking fees, amid the political and economic turmoil of 2022, income was up 14 per cent at £25billion and corporate and global markets turnover was higher by 8 per cent, at £13.4billion.

That is not out of line with New York rivals. The share price fell like a stone.

The main disappointment for the stock market was the failure to take full advantage of higher interest rates and push up margins in the final quarter of the year.

It didn’t help that there was a decision to set aside a further £500million for possible bad loans, bringing the total for the year up to £1.2billion.

Regulatory missteps over the last year saw the bank cut its bonus pool by £500million with chief executive CS Venkatakrishnan among those taking a hit.

Investors should not despair. The bank’s consumers, card and payments arm continued to perform strongly.

Moreover, it remains a global leader in fixed interest trading, a legacy of the often underrated Bob Diamond era.

Venkat needs to show that the substantial discount of Barclays’ market value to assets is a mismatch.

Cash bonanza

Savers may have swerved investing in funds and shares amid the market turmoil last year, but that did not stop trading platform Hargreaves Lansdown cashing in.

Profits jumped 31 per cent to £198million in spite of a 30 per cent drop in new business and a 10 per cent decline in assets under control, to £127billion.

So how did departing chief executive Chris Hill and his team manage this alchemy?

The big leap came from income on cash accounts, which rocketed to £121.6million, up from £11.3million.

As clients moved into cash from funds, it parked the money with a variety of banks.

A small proportion of this accidental income was passed back to clients but much of the uplift, as interest rates climbed over the year, accrued to Hargreaves.

It earned a margin of 1.6 per cent to 1.7 per cent against the 0.55 per cent to 0.60 per cent it pays on the cash that it holds.

That may have been easy money for it and an unexpected bonus for investors in the broker’s shares.

Savers who trust the platform to look after their interests might feel as if they have been treated less than fairly.

It’s not the first time. Remember the 300,000 Hargreaves investors who lost out when Neil Woodford’s investment empire collapsed three years ago.


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