Alex Bromer: The Bank of England needs less groupthink and more diverse voices

Gordon Brown’s greatest gift to the UK economy is an independent Bank of England.

One may disagree with the Bank’s insistence on charging unnecessarily harsh interest rates, and despair at its misguided expectations.

No one disputes that those who undertake this task are acting in good faith. However, it is crying out for reform.

The Treasury, which nominates members, has a safety-first policy, often selects its graduates and creates groupthink. Labor is nervous about proposing reforms for fear it could destabilize government bonds and the pound.

But it clearly requires more diversity of viewpoints and deeper geographical knowledge than the kind provided by regional US Federal Reserve Banks.

INDEPENDENT MIND: The Bank of England's current outlier is Associate Professor at the London School of Economics Swati Dhingra, who last week voted for a quarter-point cut in the bank rate from 5.25%.

INDEPENDENT MIND: The Bank of England’s current outlier is Associate Professor at the London School of Economics Swati Dhingra, who last week voted for a quarter-point cut in the bank rate from 5.25%.

In the current situation, it takes courage to vote against the majority.

One may disagree with former dissidents such as Professor Danny Blanchflower and Adam Posen, but their dissenting voices were valuable.

The current outlier is London School of Economics associate professor Swati Dhingra, who last week voted for a quarter-point cut in the bank rate from 5.25 per cent.

Borrowing costs have moved very quickly from the abnormally low rate of 0.1 percent to the current level.

In an interview with the Financial Times, Dhingra said the slowdown means the nation is looking at a “very restrictive monetary policy” even if interest rates fall.

Analyzing the CPI, I noticed that 97 percent of the elements that led to higher inflation were rejected.

It opposes the idea that consumption leads to increased demand. In its view, the bank is underestimating downside risks and that the real economy’s output and jobs could take a “downside hit in a profound way.”

This view is unlikely to be heard from any of the other chairs of the Monetary Policy Committee. This is why a broader range of viewpoints is so essential.

Buyback flow

BP needed a strong hand at the wheel after the messy departure of Bernard Looney.

Shareholders were disgruntled with the green commitment at a time of geopolitical turmoil, leading to a cash boom in 2022 and a floor on oil prices in 2023.

Murray Auchincloss’s first appearance as BP’s CEO would help repair confidence. It takes a leaf out of Shell’s playbook by rewarding shareholders while maintaining a commitment to a greener future.

Nervous investors will be calmed by pledges to buy back £2.8bn of shares in the first half of next year and up to £11bn over the next two years.

The focus on transforming BP into a “higher value” company was made possible in part by stronger-than-expected fourth-quarter earnings, which boosted this year’s result to £10.98bn – about half of 2022’s bumper total.

As a former CFO, Auchincloss is well-suited to reshaping balance sheet priorities.

Capital spending plans will be scaled back to £12.7bn this year and next versus the previous target of £14.2bn.

The North Sea remains part of that, and the Seagull project is expected to become operational in 2025.

BP also still operates in the Gulf of Mexico, where the Deepwater Horizon explosion nearly destroyed the company in 2010.

Oil spill payments continue with the company expecting payouts of just under £1bn in 2025.

Low carbon investing expands with BP buying the 50.03 per cent stake it does not own in battery storage group Lightsource BP.

BP and Shell are easy targets for climate change activists. However, the wealth generated from oil and gas also gives them scope to be among the UK’s largest investors in carbon reduction projects.

The green goals are sound but it’s the promise of some big paydays that has lifted lackluster BP shares.

Long request

Kwasi Kwarteng’s term as chancellor may have been short, at just 38 days, but it was filled with incidents.

His mini-budget, which included £45bn in tax cuts, led to a jump in borrowing costs, a sterling crisis and a pension system implosion.

Kwarteng was in Washington for International Monetary Fund meetings where the six-foot-tall adviser received a rebuke from the diminutive Janet Yellen for his flawed policy.

Still convinced he was safe, Kwarteng returned to London overnight to confer with colleagues only to find he had been sacked by his political soul mate Liz Truss while suffering from red eye.

And now he had to leave the House of Commons: it had been an exhilarating journey.

(tags for translation) Daily Mail

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