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Taking a breather

29 September 2023

The Bank of England (BoE) opted to hold interest rates at last week’s MPC meeting, leaving rates unchanged at 5.25% and ending the run of 14 consecutive rate rises. The unexpected slowing of inflation last month from 6.8% to 6.7%, despite a rise in petrol prices, along with other signals, convinced the members to hold steady. The committee voted 5-4 in the end, with the minority backing another 0.25% point hike. Hardly a unanimous, confident decision.

The Bank recently admitted errors in its UK inflation forecasts and have decided to review this. Here’s hoping they review and fix the errors speedily as this is critical for the BoE to avoid lurching from ‘too easy a policy’ to ‘too tight a policy’. In my opinion, with price rises at the pumps, Dollar strength and economies around the world becoming more insular, it is impossible to call the top but I do feel by the end of the year the rate increase cycle will be in the rear-view mirror and I hope the BoE will learn from earlier errors moving forward.

The big concern currently is the oil price which seems to be heading towards $100. This will not only affect our inflation rate but those worldwide. Even the US will have issues. Under the Biden administration the US has withdrawn 180 million barrels from the strategic reserve bringing the stockpile to its lowest level since the 1980’s. So, although this has helped with supply and tamed inflation in the aftermath of Russia’s invasion of Ukraine, attempting to refill at these levels will be rather unkind.

With the next OPEC and non-OPEC meeting not until 26th November in Vienna, Saudi Arabi are unlikely to budge on their current cuts.

The UK and Rishi Sunak must have had this in mind, kicking the Green agenda back 5 years and approving major oil and gas projects in the Rosebank oilfield west of the Shetland islands. Anything to close the gap – political football is kicking off early.

Our Parliament, I hope, will be better orchestrated than our Canadian counterparts. Canadian Prime Minister Justic Trudeau was hosting President Zelenskyy but was left “deeply embarrassed” this week after House speaker Anthony Rota, who has since resigned, honoured a man in Parliament who he believed to be a Ukrainian hero. It has since transpired the man was no such thing, instead having links to an SS Nazi unit.

National Grid

After much debate, we have decided to sell our holding in National Grid. Unlike water utilities who are hot in the press due to their sewage-dumping habits and ever-growing list of large-scale leaks, National Grid, has so far avoided public ire, but for how long…

Although as I alluded to above, the green transition has been pushed back to 2035. Electrification will play a crucial part in cutting carbon emissions and our green push. The cost of this for National Grid is uncertain, infrastructure projects in the UK rarely run to budget and I am concerned at the scale and cost for National Grid. Early figures mention the setting aside of £40 billion to invest between 2022 and 2026. This could be far larger working off HS2. One of the key attractions to investing in National Grid is the dividend yield. The burden of the above, along with Ofgem’s tight price control framework mean this will be far harder to fund, with dividend cover already tight. Add in the politics and we decided to sell and move on early.

Neil Morss, Chartered FCSI