Spending splurge requires a central bank response – but what about the manufacturers battling to make headway against a rising pound?For those economists itching for an interest rate rise, the latest retail sales figures arrived with exquisite timing.After gorging on electrical goods on Black Friday, shoppers are looking to do more than deck the halls with boughs of holly this Christmas. Star Wars toys, it seems, are just an appetiser. And strong consumer demand needs a central bank response. And that response is higher interest rates.Related: Black Friday discounts drive surprise rise in UK retail sales Continue reading...

Bankers and CEOs are praying that this year’s tsunami of merger and acquisition deals has a lot of force left – and won’t end the way previous booms haveWell the Fed has finally done it and raised interest rates. Stock markets seem to like it so far. But it may also spell the end for the biggest boom in mergers and acquisitions the world has ever seen. If it does, we should all be worried.Maybe it really might be different this time? The phrase is probably one of the most overused in the world of finance. And yet, bankers, lawyers and corporate CEOs are all praying that this year’s tsunami of merger and acquisition deals has a lot of force left in it – and above all, that it won’t end in bloodshed and tears, as the last two big M&A booms have done.

In an uncertain post-crash economy, the Federal Reserve seeks comfort in old maps which led it to hike borrowing costs. But for the uncharted waters of 2015, it is steering the wrong wayIt has been eight years since the US slipped into recession, and seven since it dawned upon central bankers that they were not merely enduring a storm, but sailing in uncharted waters. The unthinkable suddenly became the unavoidable: some institutions were left to collapse, others were nationalised, and the electronic printing presses were set whirring. Interest rates were slashed to virtually zero, lower than ever before, and then left there. In the pre-crisis world, this ultra-cheap money would have spurred cavalier investments, wild pay demands, and – soon enough – inflation. But this slump defied the old models. Growth came back only slowly, and even after it did prices and pay remained eerily stagnant.By comparison with the UK and Europe, it is true, the US did enjoy certain advantages. It was spared Osborne-style retrenchment in the aftermath of the crash, and – when a nascent recovery stirred – it wasn’t choked by flawed currency union. Output did grow, unemployment did fall, and America settled into a tolerable if lacklustre new normal. For the Federal Reserve, the question became whether it was normal enough for it to revert to the old maps, which pointed to raising interest rates. For chair Janet Yellen, navigating by an old map must feel more reassuring than steering with no map at all. For market sentiment, too, there is comfort in the symbolic declaration of “emergency over” that a rate rise provides, which is why stock prices rallied ahead of Wednesday’s move, even though the immediate effect of costlier borrowing is negative for profits. Continue reading...

2015 has been the year of the pay rise – in 2016 we may not be so lucky“What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer,” asks Scrooge in A Christmas Carol. “Every idiot who goes about with ‘Merry Christmas’ on his lips, should be boiled with his own pudding, and buried with a stake of holly through his heart. He should!” Ebenezer famously struggled to be Yuletide-appropriate. Even so, as Britons sink into the season to be maxed-out, a bit of Scrooge’s scepticism about how we’re going to pay it all back would be handy. Because while the government is trumpeting the jobs recovery, and there are some grounds for celebration, there are also real causes for concern.But let’s not stint on a hefty dollop of good news: 2015 has been the year of the pay rise. After seven miserable years in which wage increases have lagged behind price rises, salaries are starting to go up in real, inflation-adjusted, terms. And go up sharply: in August, earnings were 3.1% higher than a year ago, even while inflation was zero. These are some of the biggest increases in a decade, albeit largely helped by vanishing inflation rather than generous employers. The one sector where bosses have dug into their pockets is in minimum-wage jobs – where they were forced to by the state jacking up statutory rates for the low-paid. Continue reading...

Minouche Shafik says she will not vote for a rate rise until she is convinced wage growth is well establishedThe Bank of England deputy governor, Minouche Shafik, has said she will not vote for an interest rate rise until she is convinced wage growth has recovered.In the latest sign from policymakers that borrowing costs will remain on hold well into 2016, Shafik noted signs that the rate of earnings growth in the UK had “levelled off” recently and that other factors were also keeping inflation low, such as the strong pound and a drop in commodity prices. Continue reading...