A change at this late stage is what the Tories dread the most. Instead, we had the sorry spectacle yesterday of two former Labour ministers not even having the guts to call for Brown to go, asking instead for a secret ballot on his performance. The plot, if one can even call it that, was always doomed to fail. Pathetic.
<strong>IT’S TIME TO STOP QE</strong>
A much more substantial story – at least when it comes to the immediate prosperity of this country – is the confirmation yesterday that the private services sector is expanding at a decent rate again. The monthly purchasing managers’ index’s strong reading means that the overall economy must have grown in the fourth quarter.
There is simply no way that we can still be in a technical recession with these sorts of figures, though the economy obviously remains feeble.
But given that we have also enjoyed better than expected money supply growth and that the credit markets have thawed, there is no longer any real justification for the extreme, emergency reflationary measures still in place at the Bank of England.
Quantitative easing needs to be halted as soon as possible; the policy should certainly not be extended after February, when it is meant to end. Unless the economy suddenly starts to tank again, the Bank should limit
itself to using interest rates as the main tool of policy.
These should be hiked by a symbolic 0.25 per cent to signal the start of the recovery and with it the gradual normalisation of economic policy (to do so at today’s Bank meeting would be too soon but this should happen by March).
My views are deeply unfashionable: most economists want to keep rates at close to zero and extend quantitative easing indefinitely. But house prices have bounced back too quickly; sterling’s collapse is worrying; and we can’t live on free money for ever, or else we will soon be blowing all sorts of new bubbles.
The government must face reality: yesterday, a gilts auction went well, not surprisingly given that the amount of UK government bonds held by the private sector has actually gone down as a result of the Bank of England’s huge purchases.
It is therefore time to end the false market in UK gilts – if nothing else, a buyers’ strike would soon force Tories and Labour alike to be more honest with the voters about the massive public spending cuts and tax hikes that lie ahead.
<strong>NOT ROSY AT M&S</strong>
Congratulations to Sir Stuart Rose, who has returned Marks & Sparks to growth.
But the retailer is still not out of the woods: while its clothing division increased its market share slightly, food remains disappointing. Like for like sales nudged up by 0.4 per cent, compared with an astonishing 13 per cent for Waitrose. M&S’s introduction of branded products in its stores (which was at least five years overdue) will probably mean stronger sales over the next few months.
But it is hard to see what Marc Bolland, when he is finally released from his contract with Morrisons and takes over as M&S’s CEO, will be able to do to revive the firm. It needs a renewed sense of purpose; yet it no longer really has a unique selling point. No wonder the shares tumbled yesterday.