As if negative interest rates are not difficult enough to explain to borrowers and savers in their own right, the Bank of England has made the issue even more complicated with its own zig-zags.
From the start of the pandemic, Andrew Bailey, in his first fraught year as governor, has made it clear he wants to do all he can to prevent scarring to the economy.
In purely economic terms, any policy which helps UK output pull out of freefall is to be welcomed.
From the start of the pandemic, Andrew Bailey, in his first fraught year as governor of the Bank of England, has made it clear he wants to do all he can to prevent scarring to the economy
It has been demonstrated in Japan, the EU and among the Nordic nations that negative rates, which make it more attractive for banks to lend rather than hoard money, can work.
The Bank’s top enforcer Sam Woods wants to make sure that commercial banks are up to the task of implementing such a challenge rather than assessing whether the policy would turbo charge lending.
The worry is that such a policy could cause systemic problems for the banking system. Repairing the balance sheets of UK banks after the financial crisis took nearly a decade and Natwest has still to escape from government ownership.
Government-encouraged Covid lending has seen billions of pounds in loans leave the banks.
Losses are likely to be considerable with bills for rotten bounce back loans estimated as high as £26billion by the National Audit Office. Weakening profitability and reserves at this juncture could be dangerous.
A second potential problem is IT. The UK’s main High Street banks largely operate with legacy systems, and it is hard to predict the impact of moving to negative rates on their functioning.
Bailey is known to have had sleepless nights when Barclays switched all its sort codes when it separated its investment bank from its UK lending arm, though as it happened all went smoothly.
Checking the capability of the banks to deal with negative rates is sensible. But I suspect there will be another big dollop of quantitative easing before that happens.
Cruz control
The adage that it is the job of the new boss to change his executive team has played out swiftly at British Airways owner IAG.
The successor to Willie Walsh as chief executive of the airline group, Luis Gallego, has parted company with BA’s pugnacious chief executive Alex Cruz and replaced him with Aer Lingus chairman Sean Doyle.
There is unlikely to be weeping and wailing at the departure of Cruz, the target of criticism by Parliamentarians, consumers and the unions.
Cruz may have been responsible for upgrading the seats in Club World, but most consumers bemoaned a loss of service standards well before Covid-19.
Other major glitches, including a total IT meltdown and a damaging cyber-attack on passenger data, also occurred on his watch.
The most embarrassing moment was when a House of Commons committee labelled the nation’s flag carrier a ‘national disgrace’ after Cruz clashed with admittedly truculent trades unions over wholesale jobs cuts.
It will be up to Doyle to reset the clock, but one can only fear that it may be several years before the BA owner becomes one of the world’s most profitable airlines again earning more than £2billion in a single year.
The golden goose for BA and its Irish and Spanish counterparts Aer Lingus and Iberia are the North and South Atlantic routes.
The most valuable thing the Government could do to restore the British economy to pre-Covid growth would have re-opened air traffic across the Atlantic.
The damage done to Heathrow as an entrepot bringing income to the City and the whole economy is immeasurable.
Heathrow reports passenger numbers last month were down 81 per cent on September last year. Job cuts at BA, given the collapse of transatlantic route, may have been inevitable.
Doyle’s first job is to repair relations with the Commons and to press for opening the skies beyond tiny specks in the Aegean.
Crossed cables
Nelson Peltz is the activist who never sleeps. Latest target is £160billion media giant Comcast, best known in the UK for its extravagant purchase of Sky in 2018.
Peltz’s theory is that Comcast’s ownership of both cables which carry programmes and the content, such as that provided by NBC Universal, is crimping returns achieved by purer play media firms such as Disney.
Chairman-proprietor Brian Roberts, with a 30 per cent share stake, has the privilege of not having to listen. Touché.
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