BoE’s Catherine Mann warns about firms raising prices
Bank of England policymaker Catherine Mann has warned that UK firms are continuing to raise prices, driving up UK inflation.
Speaking to Bloomberg TV, Mann says she is concerned by the strong pricing power exhibited by firms, which many consumers have been willing to pay.
She explains that the price of gas and goods imported from abroad are “on the downturn”, and not rising as fast as they did last year.
But on the other hand, Mann is concerned by the extent to which firms have strong pricing powers, and the acceptance of those higher prices by many consumers.
Mann says:
Of course, not all but even in the face of the cost of living crisis there are still a lot of people out there who are willing to pay higher prices, and firms are willing to set their prices high.
This is a growing concern among central bankers. Last week, the European Central Bank signalled it was closely monitoring potential price gouging of consumers.
[The Bank of England’s mandate is to keep inflation at 2% in the medium term, but inflation has soared over that target since the summer of 2021. In January this year, consumer prices rose at an annual rate of 10.1%.]
Mann, a hawkish member of the Bank’s monetary policy committee, says she feels vindicated after calling for interest rates to be raised faster in 2022, arguing that a ‘front-loaded’ policy would have been more effective in dampening inflation expectations.
She argues that more monetary policy tightening needs to be done, so that inflation expectations fall.
The weak pound, she says, is a “very important ingredient” pushing up inflation, as it raises the cost of imports of goods, and energy. The UK, Mann points out, is a “small open economy” which imports a lot of products.
Key events
Mann: Early retirees may seek return to jobs market
Catherine Mann also predicted that some of the older workers who took early retirement in the last couple of years may try to return to the jobs market, because they struggle to live as they’d like on their pensions.
She told Bloomberg TV that it is “a challenge” to retire at 55, and make sure your retirement savings match your longevity.
BoE policymaker Mann predicts that some of these early retirees will end up looking for work, saying:
I worry that a couple years down the line, we’re going to see people trying to come back into the labour force, and that’s going to be much more difficult.
There has been some indication that people are looking for part time positions, Mann says, adding:
It’s early on that and as I say, I worry that people are going to find that their pensions are not sufficient for their preferred lifestyle and are going to want to come back.
Mann also expressed concern about the supply side of the UK economy, saying:
It really is striking how slow growth is in the UK — much slower than what we observed for the US or for the euro area. Brexit is a factor on the supply side and on pricing power.”
Phillip Inman: Bank must wake up to risks of greedflation
Phillip Inman
Catherine Mann says companies are in a strong position to raise prices and this might force the BoE to maintain high rates or even increase them further, my colleague Phillip Inman writes:
Mann appears to have been blindsided by how corporate monopolies hand consumer goods companies the power to exploit a crisis by uniformly jacking up prices. In the US this trend has been dubbed greedflation.
The ECB has discussed it. But seemingly not the Bank of England.
On the services side of things, Brexit has limited skilled labour. You might ask how can services firms increase prices if there is intense competition. Well, the savings or inheritances of better-off people allows them to pay higher prices for everything from new kitchens and plumber callouts to higher solicitors or accounting fees.
Other, less well off consumers are forced to follow suit.
Bunzl’s recent results illustrate the point. It has become one of the most successful FTSE 100 companies by smuggling huge cost increases into its delivery and logistics business, pushing up the prices of all kinds of goods and services that consumers pay. Incredibly, last year it preserved profits and increased margins.
This situation is most likely going to be a one-off, given inflation’s likely precipitous fall this year.
But it has preserved corporate margins for the last two years and left 90% of people worse off. And BoE rate hikes have helped impoverish people further by raising the cost of borrowing.
Mann has shown in speeches that she is very concerned about the labour shortages and their impact on rising wages and, in turn, prices.
But it is only now dawning on policymakers that big corporates have capitalised on the crisis to increase prices even more than they needed to, boosting profits and dividends for shareholders.
Mann’s answer is to raise interest rates further, even though this only punishes mortgage holders, most of them young and middle aged families, and not the rich, who now get higher rates for their savings.
Catherine Mann doesn’t name and shame any companies who have been exhibiting ‘strong pricing power’, but there are plenty of examples of firms who haven’t been shy to whack up their prices.
Unilever, which owns Marmite, Ben & Jerry’s ice cream, Dove soap and Domestos bleach, lifted its prices by 11.2% last summer, and predicted further rises last month.
Coca-Cola’s average selling price rose 11% during 2022, and it plans to raise prices further this year.
Nestlé lifted its prices by 8.2% last year, which it says did not fully offset its rising costs, and is also planning further price increases this year.
Supermarkets have been lifting their prices too, pushing grocery inflation to a record high of 17.1% last month – leaving one in four families struggling.
Many broadband and mobile companies are preparing to hit customers with inflation-busting price rises of up to 17% this spring.
Recent falls in UK house prices need to be put in context, Catherine Mann argued today.
She pointed out to Bloomberg TV that prices have “appreciated dramatically” over the last couple of years.
That has created a wealth effect which has only been slightly eroded by falls in prices since last summer.
Mann says:
A lot of prices have appreciated dramatically in the last couple of years.
So there is some price depreciation, but it’s really not that much compared to how much prices on average appreciated over the last couple of years.
So we have to take into account what the starting point was, as well as the dynamics of the current pricing.
Q: So do prices have further to fall?
Mann suggests that the market could be in a “revival” rather than continuing to fall.
She points to the reduction in mortgage rates from the high point last autumn, and the increased competion with various lenders launching new mortgage products.
As we covered this morning, Halifax reported today that prices rose by 1.1% in February, but average prices were still down around 2.9% or £8,500 on the August 2022 peak.
Bank of England rate-setter Catherine Mann also warned that sterling could face downward pressure if investors have not yet fully priced in hawkish messages from the U.S. Federal Reserve and the European Central Bank.
She told Bloomberg TV:
“The important question for me with regard to the pound is how much of that existing hawkish tone is already priced into the pound.
If it’s already priced in, then what we see is what we get. But if it’s not completely priced in, then there could be depreciation pressure.”
This has nudged the pound a little lower today, it’s down 0.1% at $1.2010.
BoE’s Catherine Mann warns about firms raising prices
Bank of England policymaker Catherine Mann has warned that UK firms are continuing to raise prices, driving up UK inflation.
Speaking to Bloomberg TV, Mann says she is concerned by the strong pricing power exhibited by firms, which many consumers have been willing to pay.
She explains that the price of gas and goods imported from abroad are “on the downturn”, and not rising as fast as they did last year.
But on the other hand, Mann is concerned by the extent to which firms have strong pricing powers, and the acceptance of those higher prices by many consumers.
Mann says:
Of course, not all but even in the face of the cost of living crisis there are still a lot of people out there who are willing to pay higher prices, and firms are willing to set their prices high.
This is a growing concern among central bankers. Last week, the European Central Bank signalled it was closely monitoring potential price gouging of consumers.
[The Bank of England’s mandate is to keep inflation at 2% in the medium term, but inflation has soared over that target since the summer of 2021. In January this year, consumer prices rose at an annual rate of 10.1%.]
Mann, a hawkish member of the Bank’s monetary policy committee, says she feels vindicated after calling for interest rates to be raised faster in 2022, arguing that a ‘front-loaded’ policy would have been more effective in dampening inflation expectations.
She argues that more monetary policy tightening needs to be done, so that inflation expectations fall.
The weak pound, she says, is a “very important ingredient” pushing up inflation, as it raises the cost of imports of goods, and energy. The UK, Mann points out, is a “small open economy” which imports a lot of products.
The publisher of the Daily Mirror and Express newspapers has revealed that annual profits tumbled by more than a quarter as it saw costs surge by 40% and a drop in advertising demand.
Reach, which also owns the Daily Star and a raft of regional titles across the UK, posted underlying pre-tax profits down by 28% to £103.3m, PA Media reports.
Underlying operating profits dropped 27% to £106.1m.
It said soaring inflation – largely due to rising newsprint costs as energy bills rocketed – pushed up its operating costs by around £40m over the year and hit demand from advertisers.
Reach saw ad revenues plunge 15.9% in the year to December 25, while circulation fell 1.7% with falls limited by cover price increases in the second half of 2022.
Digital advertising, which has been a strong growth area for media firms, fell 2.7% in the second half of the year as the economic outlook worsened.
Mr Kipling maker Premier Foods lifts profit outlook
Premier Foods has lifted its forecast for profits this year, after its grocery business saw strong demand.
The maker of Mr Kipling cakes and OXO cubes said it now expected adjusted profit before tax to be around £135m for the year to April 1, 10% higher than the prior-year figure.
Premier Foods also saw improving demand for its sweet treats segment improves in the fourth quarter.
Shares have jumped 10% this morning.
In January, the company said it would raise prices and cut spending as a way to offset high input cost inflation.
UK house prices appear to be “somewhat stabilising” despite the ongoing pressure of the cost-of-living crisis on the housing market, says Charlotte Nixon, mortgage expert at Quilter:
The fall in mortgage rates compared to the peak seen towards the end of last year has probably boosted buyer confidence, but this could be short-lived, Nixon warns.
She predicts that interest rates will continue to rise this year, weighing on prices:
Although we have hopefully passed the peak of inflation, it’s still likely that interest rates will still rise further, and the current unpredictability of the market will be concerning for homeowners who may be looking to sell their properties.
“While this morning’s figures are slightly more positive than some may have expected, the high cost of energy and increased mortgage rates could see a return to falling prices over the next few months.
Many homeowners are struggling to keep up with the increasing energy bills, which is causing them to cut back on their spending elsewhere. This, in turn, has decreased demand from buyers as people are hesitant to make such a significant investment in a time of financial uncertainty.
In the City, shares in UK energy services company John Wood have jumped 15% after it received a fouth takeover approach from private equity firm Apollo.
Wood, which had rejected three unsolicited proposals from Apollo already, received a fourth proposal for a cash offer of 237 pence per share – around 20% above last night’s close.
However, the board of Wood say they believe this latest proposal still undervalues the compay, so they are “minded to reject” it.
They add:
The Board will continue to engage with its shareholders and intends to engage further, on a limited basis, with Apollo.
There can be no certainty either that an offer will be made nor as to the terms on which any offer might be made. Further announcements will be made as appropriate.
Shares have jumped to around 222p this morning, still below Apollo’s offer – but up around two-thirds so far this year.
