the times | Friday March 18 2022 37
Business
Food and non-alcoholic beverages
Alcohol and tobacco
Clothing and footwear
Housing and household services
of which owner occupiers’ housing costs
Furniture and household goods
Health
Transport
Communication
Recreation and culture
Education
Restaurants and hotels
Miscellaneous goods and services0.02-0.02-0.01-0.01-0.06-0.090.010.14
0.06
0.04
0.0400Percentage points
Contributions to inflation
Source: ONSRate-setters stuck
in their own trap
T
hat’s what you call
“transitory” inflation: price
growth heading for 8 per
cent by next month,
followed by something
potentially double-digit by October.
Blame soaring energy prices and
Vladimir Putin’s invasion of Ukraine
if you like. But, at root, this is a
monumental screw-up by the Bank
of England governor Andrew Bailey
and his eight fellow rate-setters on
the monetary policy committee.
They’ve really only got one job:
hitting the 2 per cent inflation
target. And they’re out by at least a
factor of four. There aren’t many
businesses where the management
survives that sort of miss. Yes,
Britain’s central bank is far from
alone in having sleepwalked into an
inflationary spiral. But by leaving
things too late, the MPC is now
playing catch-up at anything but an
ideal moment. December’s rate rise
from 0.1 per cent to 0.25 per cent
coincided with the uncertainty over
Omicron. February’s extra quarter
point increase came with Ofgem’s
£693 hike in the energy price cap to
£1,971 a year. And now Ukraine
provides the backdrop for the return
to a pre-pandemic 0.75 per cent.
True, Bailey is right that
“monetary policy is unable to
prevent” the sort of “large shock” to
the economy that comes with
Putin’s assault on Ukraine, with
rocketing energy prices and
gummed-up supply chains adding
an extra inflationary twist. But the
MPC had lost control of prices long
before that. Now it can do little
more than warn that, come October
when the energy price cap could
easily reach £3,000 a year, inflation
could climb “several percentage
points” above the peak 7.25 per cent
that it forecast in February.
Unlike the US Fed, it’s unclear too
whether the MPC has the stomach
to get serious about soaraway prices.
America’s rate-setters hawkishly
signalled six more rises this year. Yet
the MPC voted only 8-1 for an
increase, with the deputy governor
Sir Jon Cunliffe voting against,
while the Bank’s tone was notably
more doveish than in February.
Perhaps Bailey & Co will be proved
right that the present squeeze on
household incomes will tame
inflation, while oil and gas prices
will start to abate. But on past form
you wouldn’t bank on it.Paying for punters
O
f course, Rishi Sunak had
heard of Deliveroo. What
else would anyone expect
from the “pig out to peg out”
supremo, always keen to tuck in?
No sooner did he get wind of the
kangaroo-eared brand’s 390p-a-
share float a year ago than he
popped up to hail it “a true British
tech success story”: a point it’s been
proving since, what with the shares
now down to 124p, even allowing for
the 5 per cent bounce on the full-
year results (report, page 41).
Not everyone, however, has the
chancellor’s encyclopaedic
knowledge of the takeaway sector,
as one stand-out figure highlights: a
75 per cent jump in Deliveroo’s
“marketing and overheads” spend toa stonking £629 million. Its chief
executive, Will Shu, says it was to
support “the acquisition of new
customers and retention of existing”
ones, boost “brand awareness” and
invest in technology. But it’s a meaty
sum, with the increase above the
70 per cent rise, at constant
currencies, in gross transaction
value (GTV) to £6.63 billion. No
surprise pre-tax losses widened
from £213 million to £298 million.
Buying customers is a pricey way
to do business. So it’s lucky Shu
expects marketing spend, as a
percentage of GTV, to “moderate”.
Much of the increase, he says, was
catch-up after investment slowed in
2020, thanks to both Covid and the
competition inquiry into Amazon’s
$575 million stake. And since 2019,
total monthly active customers are
up 123 per cent to 8 million, with
4.1 million in the UK and Ireland;
proof of Deliveroo’s enduring post-
lockdown appeal.
Yet the costs of keeping the
punters need to come down. And
not least when Deliveroo’s cutting
its guidance for 2022 GTV. It’s now
forecasting a wide range of 15 per
cent to 25 per cent growth versus
the previous 20 per cent minimum,
partly due to the extra “inflationary
pressures” hitting consumers,
“exacerbated by the grave crisis in
Ukraine”.
Yes, Deliveroo is in land-grab
phase. And Shu has shown investors
a path to some sort of profitability:
“adjusted ebitda breakeven” by no
later than the first half of 2024. The
shares no longer look pricey either:
the group’s £2.15 billion market value
includes £1.3 billion of balance sheet
cash. But Shu will still have to pedal
pretty hard to live up to the
chancellor’s pre-float hype.Return flight
A
nother day, another corporate
retreat from Russia. This time
it’s Raven Property, the
Moscow warehouse outfit run by
Anton Bilton and Glyn Hirsch.
Having floated in 2005 and followed
up a year later with a £310 million
fundraising at 115p, the best the duo
can now come up with is to cancel
the listing. The shares today?
Suspended at 3.82p.
Raven’s interests in Putinland are
now being “divested” to a Cypriot
company owned by the local
Russian management. In return,
Raven’s got a “put option”, which
may enable it to retain an
“economic interest” in the Russian
business. It’s mainly via £678 million
of newly issued preference shares,
ostensibly paying a 10 per cent
annual coupon: a heroic sum for a
group valued at £21.6 million. The
catch? Given the sanctions regimes,
even Raven is “unable to assess” the
real value of the prefs or whether
the coupon will ever be paid.
Bilton and Hirsch are also behind
Sabina Estates, the outfit that’s
developed “Ibiza’s first ecologically
inspired private villa estate”: luxury
pads complete with “uninterrupted
sea and sunset views”. The least they
could do is put up Raven’s skint
shareholders for free.[email protected]business commentary Alistair Osborne
looking at people who are either going
to leave [Arm] through the redundancy
process or who perhaps think this is the
first wave of several. [They’re] very
transferable skill sets.”
Simon Beresford-Wylie, chief execu-
tive, said: “Imagination is on a roll.
We’re innovating, winning new cus-
tomers and we’re growing.”
Although full financial results for
2021 have not yet been published, the
company says it expects revenue and
profit growth to continue into this year.
It opened a third UK office in Cam-
bridge in August last year, in addition to
its bases in Bristol and Kings Langley.
Arm, whose job cuts are said to affect
staff mainly in Britain and the United
States, also has offices and a headquar-
ters in Cambridge.
Imagination hailed the success of a
recently implemented hybrid-working
framework, which allowed staff to split
their time between offices. It hopes to
use this framework to recruit from
outside its office locations.
“In six months we have filled our first
Cambridge office and are now looking
to expand further, both there and else-
where in the UK,” said Nick Merry, its
chief human resources officer.
System failed steelworkers
over pensions, says report
Patrick Hosking Financial EditorThousands of steelworkers were let
down by their financial advisers and the
Financial Conduct Authority, accord-
ing to a National Audit Office report on
the pension transfer scandal of 2017-18.
The watchdog said many had suf-
fered significant losses and missed out
on full compensation because the ad-
visers who wrongly recommended that
they transfer out of the British Steel
Pension Scheme had since gone bust.
A deadline requiring workers to
make a quick decision on a complex
matter, poor communications by the
scheme, an ill-prepared financial ad-
vice industry and limited insight at the
FCA into the scale of the mis-selling all
contributed to the issue, the NAO said.
In 2017 a restructuring of the BSPS by
Tata Steel gave 44,000 members the
choice to transfer out completely. In
most cases, transferring out of theBSPS, which offered guaranteed pen-
sions regardless of stock-market per-
formance, was a bad idea, but almost
8,000 members were advised to take
that option. Transfer values averaged
£365,000 and some were more than
£1 million. Advisers were usually only
rewarded if the client transferred out.
The FCA was initially blindsided, the
report suggested. It “did not have data
on the number of transfer requests” or
the “state of the adviser market” in the
areas in which members lived, such as
Port Talbot and Hull.
The data was held by the scheme’s
trustees and administrators, who were
not FCA-authorised, the report said. Of
the 369 advisory firms involved, most
were too small to be closely supervised
by the FCA. Victims missed out on
£18 million worth of compensation.
Meg Hillier, of the Commons’ public
accounts committee, said the regulator
had “been asleep at the wheel”.are going, as well as a natural slowdown
in household spending that comes with
a squeeze on living standards.
“The judgment that inflation would
fall back also reflected that monetary
policy would act to ensure that longer-
term inflation expectations were well
anchored around the 2 per cent target,”
the Bank said — a riposte to critics who
think its credibility when it comes to
curbing inflation is on the line.
Markets have responded by drasti-
cally reducing their rate expectations
for the rest of the year to 1.75 per cent by
September and 2 per cent by the end of
the year, down from 2 per cent and
2.5 per cent respectively. It is the biggest
drop in future rate expectations in over
a decade, Samuel Tombs at Pantheon
Macroeconomics, said. “The tone of
the vote and minutes caught markets
off guard.”
On wage rises, the Bank in February
warned that households were facing
the steepest drop in disposable income
since comparable records began
30 years ago.
In light of the income squeeze, rate-
setters have chosen to keep their
powder dry just before the chancellor’s
spring statement, passing the baton to
him to address the record tightening in
living costs. It said: “This is something
monetary policy is unable to prevent.”Plea to help
poor with
energy costs
Arthi Nachiappan
Economics CorrespondentGovernments should help poor people
with rising energy bills as economies
are hit by slower growth and higher
inflation because of the war in Ukraine,
according to the Organisation for Eco-
nomic Cooperation and Development.
The organisation has knocked a per-
centage point off its forecast for global
GDP this year and raised its inflation
estimate by 2.5 percentage points as a
result of Russia’s invasion.
It had expected world output to rise
by 4.5 per cent, but said the war would
have a number of “significant economic
implications”. It expects global inflation
to average at about 7.5 per cent.
It said “temporary cash transfers
targeted to vulnerable consumers can
be an efficient way of mitigating the im-
pact of energy prices rises”. Researchers
advised against moves that are less
targeted at those in “genuine need”.
Government spending packages of
around 0.5 per cent of GDP could “sub-
stantially mitigate” the economic im-
pact of the crisis without significantly
adding to inflation, the OECD added.
The organisation is based in Paris and
made up of 38 advanced economies. It
was founded in 1961 to encourage world
trade and economic growth.
Russia and Ukraine contribute a
small amount to global output, but are
big producers and exporters of basic
food items, energy and minerals. The
organisation said: “The war has already
resulted in sizeable economic and
financial shocks, particularly in
commodity markets, with the prices of
oil, gas and wheat soaring.”
Russia and Ukraine jointly account
for about a third of global wheat exports
and produce fertilisers and metals such
as nickel and palladium, which are used
in industrial production.
Disruption to wheat, corn and
fertiliser risks increasing levels of
hunger and lack of access to food across
the world, while higher metal prices
could affect industries including air-
craft, car and chip manufacturing.
Laurence Boone, chief economist
and deputy secretary general of the
OECD, said: “Government policy has a
crucial role to play in re-establishing
some of the certainty and security we
have lost.”