Comment: Whether luck or judgment, Carney wins

IT HAS been a good month for Bank of England governor Mark Carney. After delivering one of the keynote speeches of the independence campaign, he must be feeling doubly delighted that inflation fell below the government’s 2 per cent target for the first time in four years.
Terry Murden. Picture: Ian GeorgesonTerry Murden. Picture: Ian Georgeson
Terry Murden. Picture: Ian Georgeson

While his predecessor appeared to be facing mission impossible, Carney has got the inflation beast under control – and has done so less than a year into the job.

But to what extent can he claim credit for achieving what evaded Mervyn King? Furthermore, is the fall in inflation something to feel cheered or worried by?

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The decline to 1.9 per cent for January is a result of falling shop prices, which in turn is because of the heavy discounting by retailers. That may be good news for hard-pressed shoppers, but also reflects the squeeze on household incomes that has deterred consumers from heading to the high street. There has also been a slowdown in demand for commodities in some emerging markets, notably in China, which has reduced prices of raw materials.

Analysts at PwC are now betting on inflation falling even further this year and that wage growth might actually rise above inflation for the first time in years. This downward pressure should ease pressure on the Bank and allow Carney to stick to his view that interest rates will not rise in the short term, although that timespan may be shortening. However, the inflation figure will also confirm his view that the economic recovery remains fragile, that it is “neither balanced nor sustainable”.

A difficulty with his prognosis is how he and the Bank square this fragility with last week’s bullish prediction that the UK economy will grow at 3.4 per cent this year, a strong upward revision on its previous forecast.

There are also worries, expressed by former CBI chairman Lord Turner yesterday, that ultimately this will be another consumer-led recovery, which sucks in imports while UK productivity remains sluggish and spare capacity unused.

Carney has made it clear that until both these drivers are corrected he will remain cautious about recovery, though the revised forecast suggests he expects them to gather momentum quite soon.

In the meantime, he will take whatever plaudits come his way, though he must realise that he has also been in the right place at the right time.

Poundland turning eyes on value of discounters

THE much-anticipated flotation of Poundland next month has prompted some broader number-crunching on the strength of the retail discount sector. As high streets struggle, they have taken hold and Poundland’s admission to the public markets is drawing attention, which is otherwise focused on online growth.

Discounters are making inroads across the piece. Aldi and Lidl are nibbling away at the big supermarket chains, while B&M is among those putting pressure on B&Q and Superdrug.

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A big challenge highlighted by analyst Nick Bubb is for the pound stores to up their game on operating and management systems to match Poundland’s impressive figures.

While some of its rivals are struggling to make decent returns, Poundland is achieving a gross margin of 36.8 per cent and an Ebitda margin of 5 per cent. On the evidence of current trading, these numbers are likely to improve further.

Twitter: @TerryMurden1