ALEX BRUMMER: The bank faces an autumn test

The original reason for moving the autumn statement to Halloween was to calm nerves in financial markets about the UK financial settlement and give the Bank of England more visibility when setting interest rates next week.

It may have been a gift for cartoonists and headline writers, but not for stability. The last thing Rishi Sunak’s government needs is a hasty, ill-conceived announcement that can be challenged by critics.

Moreover, if the temporary measures to raise taxes are taken – big bets are on bank raids – Chancellor Jeremy Hunt, a more measured and calm figure than his predecessor Kwasi Kwarteng, will want to understand what is possible.

There may be a small window for a tax windfall while banks dump big profits. In the third quarter (as well as on the continent), ATMs struggled at HSBC, Barclays and Standard Chartered.

But one has to ask how sensible it would be to take £35bn to £40bn from banks over a few years when the global economy is slowing and all sorts of volcanoes could erupt in the non-banking financial sector.

Banks did not become stable after the financial crisis, only to explode at the first smell of credit. The liability oriented investment (LDI) fiasco in our pension funds is something to think about.

It would be helpful if the Bank of England had a clearer picture of fiscal policy ahead of next week’s November interest rate decision, but the view that Governor Andrew Bailey and company are running blind is not quite right.

Many forecasts point to a deficit of £40 billion in public finances. Indeed, the chancellor promises to close it. It should also not be forgotten that next week’s meeting of the Monetary Policy Committee will be addressed by the Treasury mandarin. Last time it was leading economist Claire Lombardelli, who could certainly advise.

In addition, during these nervous days in global markets, Messrs. Hunt and Bailey are in regular telephone contact. Indeed, Bailey was one of the first to be alerted to the November 17 fall statement date change.

Many forecasts point to a deficit of £40 billion in public finances

The bank must make two decisions. It must review interest rates and decide whether to start quantitative tightening. The message of the International Monetary Fund was that if central banks are going to tackle inflation, they had better do it decisively.

Markets expect the Bank to raise rates by three-quarters of a percentage point from 2.25 percent to 3 percent. The same increase of three-quarters of a point is expected from the European Central Bank today and from the US Fed next Wednesday.

The Old Lady’s failure to keep pace could be a setback for gilts and sterling. The bank may be advised to be cautious about its announced intentions to sell bonds back to the market. Her previous intervention to calm the gilts was for financial stability reasons to prevent an LDI explosion turning into a cascade of insolvencies.

However, this was widely interpreted in some quarters as even more money printing, as in previous market crashes. Although the Bank would like to demonstrate that stability and money taps work independently of each other, confusion is bound to arise.

It may be better to wait than jump into the planned £100bn of monetary tightening this year.

Pricing is a pain

Should consumer goods firms be better corporate citizens? Faced with the choice of absorbing the pain of rising costs, companies such as Reckitt Benckiser are favoring investors over customers.

But there is a danger. By preserving the value of superbrands like Cillit Bang, Clearasil and the painkiller Nurofen, and pleasing shareholders, consumers risk finding cheaper copycat brands – painkillers are a good example – doing the job just as well. And the risk is the permanent loss of customer loyalty.

Basic economics tells us that if you lower or at least maintain the price (in the face of inflation) then the demand for the product should increase. So far, the big players – Reckitt, Unilever and Nestle – have decided to go one step further by passing on costs. If Reckitt finally finds a chief executive, perhaps he or she should break ranks and put the consumer first. Longer-term gains may outweigh investor dissonance.