Martin Flanagan: King looks relaxed about yet another letter to No 11

BANK of England governor Sir Mervyn King has again had to write one of “those” letters to the Chancellor saying he has not blotted his inflation copybook – it only looks that way on the surface.

Perhaps metaphorically fiddling with his satchel, King has told George Osborne that although October inflation at 5 per cent is way above the mid‑term target it will all come right next year.

These statutory letters when the 2 per cent target has been missed have become a habit. But we should not be too sceptical. Like King, most City economists also believe that high inflation is due to a range of one‑off factors, is past its peak, and will fall sharply in 2012.

Sign up to our Opinion newsletter

Sign up to our Opinion newsletter

The balance of probabilities strongly suggests this. Last January’s VAT rise – a key component of inflation – is taken out of the equation in the New Year, and commodity and energy price rises are past the worst.

There was even a slight improvement in October, with inflation falling from September’s three‑year high of 5.2 per cent. That was largely down to supermarkets triggering price wars to attract hard‑pressed consumers, a definite positive trend in reducing inflation.

It is also clear that companies will find it extremely tough to pass on input price rises to consumers in next year’s tough economic climate.

All these factors are likely to press down on inflation. Cumulatively, the difference should be marked and makes it a decent bet that inflation will fall to target by the end of 2012.

By that time we may have other economic difficulties to contend with as the eurozone storm clouds spread out to the UK and farther afield globally. Our concerns now about inflation may by then seem the least of our worries.

Turbulence continues in the budget airline world

THE EasyJet boardroom row between its management and the airline’s founder and majority shareholder, Sir Stelios Haji‑Ioannou, looks to have plenty of runway yet – even in the face of yesterday’s bumper profits and dividend largesse.

Stelios will get about £51 million in all under the special and ordinary divi payouts announced yesterday. But it is unlikely to allay the founder’s differences of opinion about the aircraft‑buying and other strategies at EasyJet, and bad blood about the exchanges between him and the management including a feisty e-mail made public at the weekend.

Obviously, the temperature was not cooled by Stelios’s recent plan to set up a rival airline – details of which remain sketchy but about which EasyJet management must be twitchy.

It is all overshadowing a very decent annual trading performance put out by EasyJet yesterday. It is entirely possible that there will be further arguments between the parties about capital expenditure and divi policy, even as the budget airline seems to be making a good fist of difficult economic conditions.

This situation is ironic but when was the airline industry ever not a topsy‑turvy one, from Michael O’Leary’s fulminations at Ryanair to the lengthy battle between Sir Richard Branson’s Virgin Atlantic and British Airways?

Investment bankers getting their hands dirty

SWISS banking giant UBS has had its well‑aired troubles in recent times, from a trading slump to alleged rogue trading. The appointment of Sergio Ermotti as its new chief executive yesterday is likely to be shortly followed by a further axe being taken to the investment banking arm given the difficult state of its markets.

Ermotti is widely expected to shortly announce a further 1,800 job cuts on top of the 3,500 announced by his predecessor Oswald Grübel before he resigned in the wake of the trading scandal in September. One senses it could also hasten the pace of similar investment banking cuts from HSBC, Royal Bank of Scotland and Barclays.

To many observers, investment bank workers often seem immune to difficult conditions in the markets, be it from equities analysts to bond and foreign exchange dealers. UBS is likely to be the latest to show this is no longer the case.