the times | Saturday December 4 2021 K1 51
Business
Simon Duke
A Bank of England policymaker says
that he may need more time to assess
how the Omicron variant will affect the
economy before deciding whether to
vote for an interest rate rise this month.
Michael Saunders, who pushed for
higher rates last month, hinted that he
may switch his vote until there were
clearer signs on how ministers would
respond to the more transmissible
Covid-19 strain.
“Given the new Omicron Covid
variant has only been detected quite re-
cently, there could be particular advan-
tages in waiting to see more evidence
on its possible effects on public health
outcomes and hence on the economy,”
he said in a speech.
The pound fell against the euro and
dollar after his comments as investors
pared back their expectations of a rate
rise at the rate-setting monetary policy
committee’s meeting on December 16.
Based on trading in interest rate
futures, investors now see a 33 per cent
chance that the Bank will lift the base
rate from 0.1 per cent to 0.25 per cent.
Before Saunders spoke, the probability
stood at 50 per cent, having already
fallen from a 75 per cent since the emer-
gence of Omicron a week ago.
Saunders, a former City economist
who is an independent member of the
MPC, said that interest rates were likely
to rise from their present historic lows
over the coming months. “If the eco-
nomy develops as I expect, then some
additional tightening, on top of such a
move, probably will be needed fairly
soon,” he said.
However, he cautioned that “con-
tinued delay also could be costly”, with
the MPC having to tighten policy more
aggressively if it sat on its hands for too
long. “If the economy continues along
its recent path, then maintaining the
current highly accommodative policy
stance would probably... reinforce
risks of a further rise in long-term infla-
tion expectations,” Saunders said. “This
could require a more abrupt and pain-
ful policy tightening later.” he added
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$70.52 (+0.92)Sterling falls after intervention by MPC member
Omicron
could delay
rate rise, says
Bank hawk
that “there are potential costs and
benefits to waiting for more data”.
Last month the MPC confounded
investors’ expectations by declining to
pull the trigger on the first rate rise
since 2018. Saunders was one of two
members of the nine-strong committee
to vote for an increase. Since then
inflation has risen to a ten-year high,
with wages increasing sharply and job
vacancies at record levels. The emer-
gence of the Omicron variant of the
coronavirus, however, has raised the
spectre of new growth-sapping restric-
tions.
In his speech, Saunders said that
Omicron could add to inflationary
pressures if it led people to stay at home
and spending more on buying goods,
when supply chains were already
strained. He argued that the inflation-
ary effects of the surge in energy bills
would be transitory, but added that the
increased cost of shipping and sourcing
goods from overseas “carry more sig-
nificance” on the future path of infla-
tion, with the tight labour market and
the rising cost of services more impor-
tant still.
The Bank expects inflation to peak at
5 per cent in the spring and then to
decline, but Saunders believes the cost
of living measure is more likely to
exceed the forecast than undershoot it.
He said that a “major upside risk” came
from the large savings that people have
built during the pandemic, which now
stand at £250 billion, or nearly a fifth of
annual consumer spending.
Saunders said it was “probably not
feasible” to expect the economy to fully
recover to “pre-Covid trends” because
of the scarring effects of Covid and
Brexit. The long-term loss of potential
output would be “relatively large com-
pared to other major economies”
because of the decision to leave the
European Union, according to Saun-
ders.
By “reducing the economy’s open-
ness”, Brexit would force up labour
costs “more strongly” in times of excess
demand compared with when the UK
was in the single market, he added.AMBER-ROSE SMITH/MARTHA BROOKSecond-hand
cars ‘cost
more than
new ones’
Robert Lea Industrial EditorDozens of car models — many of them
plug-ins — are so scarce that second-
hand versions of the same vehicle are
retailing for more than those coming
off the assembly line, according to the
most recent data.
In the latest signs of the upheaval in
the car market, figures show that 25 per
cent of “nearly new” cars are more
expensive than their brand new
equivalents. This has been the result of
computer chip shortages reducing
production volumes and unfulfilled
consumer demand exacerbated by
buyers coming out of their three-year
payment plans signed before the
pandemic.
A report by Auto Trader, the motor-
dealing website, found that of 900,000
vehicles going through its portals, the
average price of a used car had risen on
a like-for-like basis by 28 per cent over
the past year to £17,366.
Auto Trader, which has been in the
second-hand vehicles market since the
1970s, thinks that the rampant rate of
inflation is a record and that price
increases over the past six months are
smilar to the figures that it might have
projected to have developed over a five-
year period.
Its figures show that the decoupling
of the second-hand car market from
normality has meant that a quarter of
used models up to a year old are being
priced at more than a new version of the
same car.
The greatest nearly new-brand new
differentials are in electric cars such as
the smart forfour (£22,400 v £16,700),
the Mercedes EQA (£55,000 v £45,200)
and the Volkswagen ID.3 (£35,100 v
£29,500). However, nearly new con-
ventional engine bestsellers such as the
VW Polo, Ford Puma and Mercedes A
Class are also experiencing 15 per cent
premiums over their brand new coun-
terparts.
“There’s been some suggestion that
we’re finally about to see the bubble
burst,” Richard Walker, Auto Trader’s
data director, said, pointing out the im-
pact of supply dislocations during the
pandemic. “But we’re seeing absolutely
no evidence of that being the case. New
and used car supply constraints will last
for much of next year and, with the
economy set to grow, we can expect to
see the very robust levels of consumer
demand continue.”
Auto Trader says that the supply mis-
match is being shown by car buyer
traffic searching on its website being up
23 per cent from pre-pandemic levels,
while the supply of new vehicles into
the market is down by 9 per cent over
the same period.M
artha
Keith, who
quit a
corporate
career to start an
independent
stationery business,
wants today to be a
red letter day for
small businesses
throughout Britain
(James Hurley
writes).
Keith, 38, above, is
one of the championsof Small Business
Saturday, an annual
celebration of
independent retailers,
and credits the
scheme with raising
awareness of her
venture, which she
started in her
bedroom in 2013. The
business, called
Martha Brook, now
has 20 members of
staff and studios in
London and Australia.
“I am passionate
about the difference
Small Business
Saturday can make,
especially at this time
of year when bigBig day to
cheer on the
little guy
retailers dominate the
marketing space. It
has made a huge
difference to us,” she
said.
Last year Small
Business Saturday,
which is sponsored by
American Express
and is now in its ninth
year, reported that an
estimated £1.1 billion
was spent with small
UK retailers. Michelle
Ovens, director of the
campaign in Britain,
said it was a “fantastic
chance” to say thank
to small firms when
many were “facing a
really tough time”.