ALEX BRUMMER: Rate setters in the dock as the inflation dragon looks to be running out of puff

Bank of England interest rate-setters must be feeling off the pace. 

Less than a week ago, three members of the monetary policy committee voted to increase interest rates in spite of falling inflation and hints of an easing from the US central bank the Federal Reserve.

Governor Andrew Bailey cautioned that there was ‘still a long way to go’ in defeating inflation.

But with food, energy and services prices falling, the cost of living is coming down much faster than expected.

All of this before higher borrowing costs and a dramatic fall in the supply of credit impact fully on the real economy of output and jobs.

Over cautious: Three members of the Bank of England’s Monetary Policy Committee voted to increase rates in spite of falling inflation and hints of an easing from the US Federal Reserve

Bailey and the independent Bank are not there to win a popularity contest but will win few friends if monetary overkill forces Britain into an unnecessary recession.

It is hard to defy the markets, and City scribblers are projecting a rate cut as soon as the spring. Given the speed with which borrowing costs rose, official data showing house prices fell 1.2 per cent in the year to October look surprisingly modest.

Forward-looking data from the Halifax and Nationwide suggest that buying homes might be getting more expensive again.

The disaster predicted a year ago, after the Liz Truss interlude, has never materialised and the cost of fixed-rate renewals is becoming less prohibitive.

The improvement has caught Labour off-guard and it is having to resort to the tired old message of referring back to whether citizens feel better now than when Gordon Brown left Downing Street in 2010.

There is often a pre-Christmas rally on equity markets. Given the gross undervaluation of many FTSE 350 shares, there is plenty of room for upward revision.

The prospect of the inflation dragon being killed and official rates coming down early next year, rather than having to wait until the summer or 2025, has everyone excited. 

Gilt yields are falling rapidly, the value of the pound has eased and the FTSE rose 1 per cent as equities regained their attraction.

With so much geopolitical turmoil at present, all of this could eventually prove a false dawn.

But for the moment, the Bank’s monetary squeeze, like so many holiday turkeys, looks overcooked.

Wrong target

The City regulator is doing its best to make the London stock exchange a better place to invest.

A decision to ease listing standards so they are less onerous will be helpful.

One wonders, however, if this would have made any difference to SoftBank when it chose Nasdaq to re-quote smart chip designer Arm Holdings. Under SoftBank, much of the top brass had gone West.

By floating in the US, SoftBank boss Masayoshi Son was able to secure cornerstone Silicon Valley investors, including Nvidia, blocked from a full takeover by anti-trust enforcers.

The Investment Association and other trade groups are cautious. Whether they should be listened to at all is a moot point.

Tougher governance rules did nothing to stop UK failures such as construction and engineering group Carillion or prevent boardroom ineptitude at BP and NatWest.

More critically, it is insurers, investment and pension funds which have undermined UK markets by abandoning listed British firms. They helped to create an open season for buyouts and overseas takeovers.

It is unacceptable that just 4 per cent of our pension funds are exposed to UK stocks.

In seeking to make the UK’s pensions industry invulnerable to plunder, legislators and regulators destroyed the flow of cash into British venture capital, start-ups and initial public offerings. It will take decades to reverse the damage.

Meanwhile, aggressive New York exchanges are showing no mercy in seeking to lure our best and brightest firms.

Mexican wave

The holiday season is proving a hard grind for Diageo’s new chief Debra Crew.

Top investors are kicking up a fuss over the way in which the Johnnie Walker and Don Julio tequila distiller handled a November profits warning, which triggered a 22 per cent share price dip on the year.

Indications are that the problems, due to overstocking in Mexico, show no signs of easing. If anyone could sort this out it ought to be Crew with her military training, North American know-how and Texan grit.

This post first appeared on Dailymail.co.uk