The Notebook: Victoria Scholar on inflation, Ocado’s woes, and why Ted Lasso is a blessed relief
The Bank of England governor Andrew Bailey has warned firms against rising prices to offset inflation. He told the BBC, “please understand if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody.”
The latest UK inflation rate for February surprised economists by picking up again to 10.4%, snapping three straight monthly declines. Restaurants and hotel prices rose by 12.1%, the highest since 1991 while food and non-alcoholic drinks prices rose by 18.2%, the worst inflation rate since August 1977. This has stoked concerns about accelerating price pressures and falling real wage growth. The Office for Budget Responsibility chairman Richard Hughes said the UK is facing the “biggest squeeze on living standards we’ve faced in this country on record.”
In response, the Bank of England pushed ahead with another rate rise, lifting the bank rate by 25 basis points to 4.25%, the eleventh increase since December 2021. The central bank followed the European Central Bank and the Federal Reserve with another round of monetary tightening, focusing on the inflation backdrop rather than the potential deflationary fallout from the banking turmoil.
Over the last week, a number of businesses in the UK have warned that prices must go up as they desperately try to protect their margins by passing on additional cost pressures to consumers. Tim Martin the chairman and founder of pub chain JD Wetherspoons said “it’s very difficult for pub companies to avoid price rises, and it might produce catastrophic results if Mr Bailey’s advice was taken too literally.” FeverTree is increasing prices as the tonic and mixers company grapples with the rising cost of glass bottles, energy and commodities. Similarly Coca-Cola HBC, Unilever and Procter & Gamble have also been hiking prices.
The worry is that translating higher costs into higher prices could make inflation a long-term characteristic of the UK economy, damaging living standards. On the other hand, if firms cannot try to preserve margins by passing on costs, profitability becomes a struggle putting more businesses and jobs at risk.
WHERE NEXT FOR OCADO?
Ocado is the worst performing stock on the FTSE 100 over the past year. In February it reported a full-year pre-tax loss of £501 million, missing analysts’ expectations. Its joint venture with Marks & Spencer swung to a loss of £4 million versus earnings of £150.4 million year-on-year. In 2023 shares in Ocado are down by more than 30% as the pandemic-era boom in e-commerce fades and shoppers return to physical stores. The cost-of-living crisis is also biting as customers switch to cheaper value ranges.
ALIBABA AND THE RARE SIGHTING
Alibaba’s founder Jack Ma has reportedly visited a school in Hangzhou. According to the South China Morning Post he has returned to mainland China after years abroad. In 2020 Ma criticised China’s financial regulators and banks. His mega IPO of fintech company Ant Financial, which could have been the world’s largest public listing, was suspended in November 2020 kicking off a regulatory crackdown on the Chinese tech sector. Ma dropped out of the public eye ever since with rare reported sightings in Thailand, Australia, Spain and the Netherlands.
TWITTER’S FLIGHT DOWNWARDS
Twitter has lost more than $20 billion in value since Elon Musk’s takeover six months ago. The microblogging site is now understood to be worth less than $20 billion, under half the $44 billion price tag that billionaire paid for the company in October. This is according to a leaked memo from Musk that he sent to company staff. Since the takeover, Twitter has had a tumultuous time with headcount slashed from 7,500 to around 2000 employees while hundreds of top advertisers have abandoned the platform.
CAN I QUOTE YOU ON THAT?
‘I don’t think it’s a repeat of 2008 at all’
Bank of England governor Andrew Bailey commenting on the recent turmoil in the banking sector
LASSO THE LIGHT-HEARTED
Ted Lasso has finally returned to our screens on Apple TV for series three. Amid the backdrop of a cost-of-living crisis, banking turmoil and geopolitical tensions, this comedy drama provides a wonderful dose of escapism as an antidote to the chaos of reality.
Ted Lasso is an American college football coach who is brought to the UK to manage the English football side AFC Richmond. In the latest series, the club has been promoted back to the Premier League, but pundits expect the team to finish last. ‘Wonder kid’ coach Nathan Shelley has jumped ship to go to manage West Ham. There is a fierce rivalry between the two sides as West Ham has been bought by Richmond owner Rebecca Welton’s unpleasant ex-husband Rupert Mannion.
Victoria Scholar is the head of investment at Interactive Investor