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Even if there is a Brexit deal, a UK interest rate cut seems likely | Nils Pratley | Business


Call it a full house of poor economic news. The services sector is contracting, according to the purchasing managers’ index, joining the manufacturing and construction industries in negative territory. In big picture terms, there are no bright spots.

The official data, which measures actual economic activity as opposed to managers’ view of prospects, may yet reveal growth in the July to September quarter. But you would have to be a supreme optimistic to believe the figure will be greater than 0.3% – and even that outcome would represent a feeble bounce from decline in the second quarter.

For the entirety of 2019, the consensus says the UK is likely to experience growth of just 1%. Meanwhile, inflation stands at just 1.7%, so below the Bank of England’s 2% target. In normal circumstances, the policy response is clear: cut interest rates.

What could stop the Bank’s monetary committee doing so at its next meeting in November? Well, it might point to wage growth of 4% as a reason to hold back. Then there’s Brexit, which towers over everything. Each possible outcome at the end of this month – a deal, no-deal, extension – comes with unknown short-term consequences, so one could argue early-November is too soon to jump in any direction.

Yet indecision can carry a cost. Even the sunny idea that a Brexit deal would unlock business investment in the UK and create a mini-boom cannot be trusted. There would be relief in most UK boardrooms but it might be overwhelmed by worries about a slowing US economy, a weak eurozone and unresolved trade wars. The global economy is not in strong health.

Michael Saunders, a member of the rate-setting committee, said last week the Bank may have to cut interest rates even if a no-deal Brexit is avoided. That was shocking in the sense that the current Bank rate is a mere 0.75%. But it was also unsurprising when you look elsewhere. The US Federal Reserve has cut three times since last December and the European Central Bank launched a cuts-plus-stimulus package last month. The UK is suddenly an outlier.

A rate cut in November looks increasingly like the right move.

Drifting smoke at Imperial

Alison Cooper, chief executive of Imperial Brands, “worked tirelessly”, made “a tremendous contribution” and “significantly simplified and reshaped” the tobacco company, says chairman Mark Williamson, who must believe every word because his board has paid her £30m over the past nine years.

So why is she out? Williamson couldn’t find space to explain and Cooper herself said nothing – not even a few anodyne words about fresh challenges, blah blah. Instead, investors were told it has been “agreed” that she will “step down” once a successor can be found.

One can only assume Cooper is less than enthused by this “agreement”, though one can see why it had to be made. Imperial’s share price has halved over the past three years, a rotten performance even within a wheezing sector. Imperial’s profits warning last week was one cough too many. Investors had lost confidence.

Cooper’s looming departure creates a crush at the boardroom door. Williamson has been trying to leave since February but hasn’t yet found a successor. This is probably because most of the usual chairing suspects don’t want to bear the stigma of tobacco. For Cooper’s replacement, the City won’t want an internal candidate, meaning Imperial will have to hunt within the ranks of rivals, which also takes time.

The real question mark hangs over Imperial’s strategy. The company was late into the vaping market and looks outgunned by the likes of Philip Morris. But is it wise to invest to catch up if the market itself could be upset by a combination of US regulators, US supermarkets and even President Trump?

As with the share price, there is a severe sense of drift at Imperial. The next chairman should start by calling time on the company’s ridiculous remuneration practices.

Brand recognition isn’t everything

Ted Baker had a shocker in the first half of this year, much worse than the share price, which has been on the slide for 18 months, had predicted.

But here’s its chief executive, Lindsay Page, talking heart from “the continuing strength of the brand,” 20% more followers on Instagram and new “monthly product drops””.

Great, but what about the prices of the clothes? Ted had less to say that score, which makes one think the many City sceptics are right. The brand may be well-known but it also looks too expensive in today’s retail world.



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