Caught Between a Sunak and an Amundi Institute

Posted on Nov 16, 2022. by NTI

It's hard to get any sense out of any of the senior team at NTI this afternoon (Wednesday 16 November), as they are mightily disappointed to have been overlooked, losing out in our bid for a £1.6 billion contract to build three support ships for the Royal Navy. The UK Government awarded it to a consortium that includes a state-owned Spanish shipyard. Apparently "... an award-winning market-leading app is not enough." Grrrrrrrrrrrr.

So, those of us left in the NTI newsroom are stuck with the much-reported 41-year high UK inflation rate in October, which accelerated to 11.1 per cent on the back of rising energy and food prices. As Chancellor Jeremy Hunt stands three feet away from a cliff face staring up into oblivion, this afternoon's news makes everything just a tad tougher for him (unless it is now easier - it really is that confusing). As an aperçu, illuminating the current knackeredness (it sounds nicer if you use a French word), food price inflation rose sharply to 16.5 per cent in October, the highest for 45 years. Good luck with everything, Jeremy, especially as the Bank of England considers the best way to deal with all of this additional expense is to raise interest rates by another 0.5 per cent this month. That's right, it is a terrific idea to curb all of our ludicrous spending sprees by making our lives more expensive.

Mr Hunt is making his Autumn Statement tomorrow. He is caught today between a Sunak, who champions tax increases and sweeping cuts to public services, and an Amundi Institute which like many other financial commentators warns against going too far and beckoning in a recession.

Clearly the bond markets didn't like Kwasi Kwarteng's (remember him?) borrowing-spending plan, but apparently they are not overkeen on austerity either. The mass leaking of Jeremy and Rishi's Statement caused the UK 10-year bond yields to fall to 3.29 per cent on Tuesday, down from 4.5 per cent in late September. That in itself gives Jeremy £8 billion worth of wiggle room. It is widely agreed that slashing Government department budgets will not solve Britain's problems, which includes a growing number of economically inactive workers who are long-term sick and starting to show in the data which demonstrates an exacerbating tightness in the labour market.

The gap between where we are now and rays of sunshine is consumed by a black hole of about £70 billion wide according to the Office for Budget Responsibility; but one bond investor based in the UK, who had just returned from lunch and an excellent bottle of Petrus 2018, estimated the fiscal hole could be as small as £20 billion now that gilt yields and gas prices are declining. Reports of how much the Government needs to save are “on the high side”, said Liz Martins, an economist at HSBC. “Expectations may be being managed.”

We will be back tomorrow with more news ...

« Back to articles