Ignore the alarmists: 0.1 per cent inflation hardly equates to Weimar Germany


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The Independent Online

The British economy remains basking in the glow of super-low inflation. Rock bottom interest rates – described by the Bank of England’s Kristin Forbes this week as like dangerously strong sunshine – will stay put well into next year.

The worry brigade will tell you otherwise. They will point to the inflation figures as evidence that prices are starting to rise and that interest rates will follow suit. Let’s get real here. Although inflation rose, zero per cent to 0.1 per cent is hardly Weimar Germany. OK, so core inflation, which strips out the more volatile items, rose to 1.2 per cent; but that’s still absurdly low, and way off the Bank’s 2 per cent target.

Meanwhile, oil prices, which feed into practically every item in your shopping basket, continue to fall, and supermarkets are gearing up for another price war, suggesting further declines in inflation.

And that’s before you factor in what’s going on in the currency markets. The strong pound, coupled with the newly weakened Chinese yuan, is making all our imported goods cheaper. These are trends that don’t seem likely to be reversed in the near future. Sunbathers, remain on your deckchairs. At this rate, the Bank won’t burn you until next spring at the earliest.



Let’s not get carried away with talk of an Arctic oil rush

So, Hilary Clinton loves polar bears more than Barack Obama does. After the President’s decision to approve Shell’s drilling in Arctic, his potential successor said it was a big mistake and “not worth the risk”. The temptation now is to predict that the decree sets a precedent that will trigger a goldrush of oil explorers all donning their parkas and heading Polewards.

Oil majors have potential Arctic projects in Russia, Norway, Greenland and Canada. But I suspect a mad dash is far more likely. Having spent $7bn already, Shell’s project was way more advanced than these others. With oil prices at such low levels, it’s hard to see shareholders approving other companies’ projects soon.

But the Clinton-Obama split is interesting. One wonders if Ms Clinton’s idealism would be quite as strong if she’d been a long-serving president. Shell has spent some $51.2m lobbying in the US in the past five years. That kind of bombardment can wear down any administration over time.



Wake up, Whitehall: Lazard isn’t the only advisory shop

Lazard is getting static for yet again landing a lucrative contract from the Government. This time it’s the mandate to sell the £5bn of state-owned land around King’s Cross train station in London.

That takes to at least seven the number of state asset sales Lazard has been awarded since the Coalition Government arrived: it’s already handled the Tote, the blood plasma service, two tranches of Lloyds, the Hinkley nuclear power station contract and then, of course, the Royal Mail. As MPs on the Business Select Committee concluded, Lazard’s advice led to that last crown jewel being sold for £1bn less than it was worth.

To be honest, the advisory fees aren’t generally great for Her Majesty’s Government’s work – a million here, a million there – but it does look good when you’re pitching for more lucrative private business. As The Independent outlined last year, Lazard old boys are liberally sprinkled through senior positions in Whitehall particularly in the Department for Business, Innovation & Skills, which holds state assets on behalf of the taxpayer. But that’s not entirely the problem.

More of an issue is the perception that there aren’t enough specialist advisory shops without conflicts of interest elsewhere. The perception is wrong. The City isn’t just made up of Citigroups or JP Morgans; other independents do exist, and increasingly so. Just ask the City’s Zaoui brothers, Robey Warshaw or Fenchurch Advisory – partnerships stuffed with deal makers who left the big, conflict-ridden investment banks.

Whitehall must throw its net wider to ensure the best brains are selling our plum assets.



Avanti’s ready if Branson’s satellites fall to Earth

When Will.I.Am flew in to London last month to promote Sir Richard Branson’s pledge to launch 900 internet-beaming satellites, many in the industry were sceptical; still more were furious.

The idea – to create a blanket of low-level satellites, to beam internet access to every remote corner of the world – has widely been dismissed as hailing from planet Cuckoo. But it was seen as no joke by more established players. The project’s potentially high-profile failure was regarded by some as jeopardising their future efforts to raise finance for more realistic, smaller projects in this high-risk, capital-intensive industry.

So I’m guessing it’s with some relief that Britain’s Avanti Communication raised $125m today to fund its satellite coverage of Africa before the Branson project falls to earth. I’ve been concerned about Avanti’s reliance on state aid, but this private funding helps ease those misgivings.

Less ambitious satellite operations, such as Avanti’s, may prove a better way than Sir Richard’s to bring the internet to the world’s poorest countries.