No interest rate cut until 2026?
The business news that matters
Scheduling note: There will be no Off to Lunch on Tuesday, back on Wednesday
Hello and welcome to the latest edition of Off to Lunch…
The reason for today’s headline is that the CBI has projected that the Bank of England will not cut interest rates until 2026 at the earliest. This is despite growing expectations within the City of London that rates will start to come down next year.
There has been speculation about when central banks will start to cut interest rates after two years of increases because inflation is easing in the UK and other developed economies. The base rate of interest in the UK is set at 5.25 per cent.
The Bank of England, the Federal Reserve and the European Central Bank will get the chance to address this issue when they unveil their latest decisions on interest rates this week. All three are expected to hold rates at their current levels, but their commentary on the outlook for inflation and interest rates will be closely watched.
The CBI, the business lobby group, has released its latest forecasts for the UK economy this morning. It said the UK faces “another year of weak growth over 2024 as significant headwinds continue to impact the UK economy”. The CBI has forecast growth of 0.6 per cent in 2023, 0.8 per cent in 2024 and 1.6 per cent in 2025. On interest rates, it added:
“Growth in consumer spending will remain weak next year (0.4%, unchanged from 2023), as higher interest rates bite harder on household incomes. While we expect the Bank of England to have reached the end of its rate-hiking cycle, the delay in the feed-though to the economy means that households have yet to feel the full impact of higher borrowing costs. The Bank rate is expected to stay at its current level of 5.25% throughout our forecast.”
The Bank of England’s target for inflation is 2 per cent. However, the CBI said that it will still be at 2.5 per cent at the end of 2024 and won’t return to target until mid-2025, hence the delay in cutting interest rates, one of the Bank’s most powerful tools in controlling inflation.
You can find the CBI’s forecasts in full here
For further reading on this I recommend reading the Financial Times’s preview of the central bank meetings this week. It includes this quote from James Knightley, chief international economist at ING, about what the Bank of England, Federal Reserve and ECB could say about cutting interest rates and the growing expectations in financial market that there will be cuts next year:
“They can’t declare victory [over inflation], and the data is actually quite helpful to push back against the market narrative. They will be very, very reluctant to give the market the green light.”
You can read that piece here
Other stories that matter…
1. The Federation of Small Businesses has filed a “super-complaint” with the Financial Conduct Authority, the City regulator, about UK banks demanding personal guarantees on loans for entrepreneurs. These guarantees mean that many entrepreneurs are putting their houses at risk. Financial Times story here and statement by the FSB here
2. The promising UK payments business SumUp, which provides small card readers to small, medium and large businesses, has raised €285 million (£245 million) of new funding. The company has been valued at $8.6 billion (£6.8 billion) in the fundraising, according to a CNBC story here
3. The entrepreneur who previously ran the Pizza Express, Gourmet Burger Kitchen, Franco Manca and Real Greek restaurant chains is on the hunt for more casual dining businesses. David Page has set up 704 Restaurants to make investments in the sector. Times story here
4. Shares in Macy’s, the US department store group, are up 20 per cent today after The Wall Street Journal reported that an investment group has made a $5.8 billion takeover bid for the retail business. Story here
5. Marc Andreessen, the US venture capital investor, wrote a fascinating piece about the role of luck in building a business and becoming a successful entrepreneur. The piece is from 2007 but has been flagged again by Colussus, which produces an excellent collection of business podcasts. The article flags some key attributes that entrepreneurs must have to get luck on their side - energy, curiosity, flexibility and distinctiveness. You can read the article here
Podcast…
The next episode of our Business Leader podcast will be released tomorrow morning and it features a look at one of the most promising businesses being built in the UK. All Off to Lunch subscribers will be notified when the episode goes live…
You can still listen to our episode with SSE chief executive Alistair Phillips-Davies about what it takes to run one of the UK’s largest companies for a decade. The episode looks at how the UK is really doing with its net-zero ambitions, what happened when an activist investor targeted SSE and why business leaders should be concerned about wet paint.
You listen to the episode on all the usual podcast platforms, including Substack here, Apple here and Spotify here
And finally…
Wikipedia has released a list of its most popular pages in 2023. This gives an insight into what has interested the world over the last 12 months. The pages are listed in order of the number of page views they attracted online in 2023. The page for ChatGPT is top, followed by “Deaths in 2023” and “2023 Cricket World Cup”. One of the biggest things that stands out from the list is the growing influence of the Indian population and economy. You can find the list here
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Best
Graham