After all, the youngest ever chief executive of a FTSE 100 bank (he is a mere 39) surely cannot expect to spend the next decade sticking to his knitting and growing the business through organic means. His successor, Andy Hornby, has been in the hot seat for all of one day and already the siren voices are calling on him to hit the acquisition trail. It does not get back up to its full complement of nine until October. That is the time to bet on an increase in interest rates if the data continues to point in the same direction, not tomorrow.Give Hornby's train set time to get goingThrough a combination of luck and judgement, James Crosby resisted the temptation to lead HBOS into a contested takeover battle for Abbey National two summers ago It was a decision which has served HBOS shareholders well. Indeed, there is an argument that high energy prices in themselves will tend to act as a brake on the above-trend growth we are witnessing.There are two other factors to bear in mind. One is that there have been very few hawkish signals emerging from the MPC, which may be an important clue given that the Bank likes to signpost its intentions in advance these days to avoid unsettling the markets The second is that the MPC is still two members short.
The last time before that was August 2004 when they went up a notch. Why then, is there still a very strong chance that rates will remain unchanged come midday tomorrow? First, and most importantly, there is little sign of wage inflation in the economy. Partly, this is a reflection of rising unemployment, partly it is the result of an influx of cheap migrant labour from eastern Europe. Strip these out and the underlying rate at which the cost of living is increasing is nowhere near as problematic. Second, the inflation figures themselves are distorted by sharply rising energy prices. Nationwide says house prices are rising at their fastest rate in more than a year and Halifax is likely to paint a very similar picture later this week.
Lloyds TSB reckons business confidence is at a nine-year high and the Purchasing Managers Index shows continued pressure on factory-gate prices. In addition to what we already know - that growth is well above trend and inflation well above target - the latest evidence would seem to make a quarter-point rate rise a no-brainer. On top of all that, August for some reason seems to be the MPC's favourite month for acting. The last time rates moved was exactly a year ago - on that occasion in a downward direction. Yesterday delivered plenty more ammunition to justify an increase in the cost of borrowing. The nearer the Bank of England gets to tomorrow's decision on interest rates, the greater becomes the pressure on its Monetary Policy Committee to raise them.
