ON THE MONEY

On the Money On the Money

Although the Bank of England was lamentably slow to get its brain in gear as consumer price inflation first showed signs of running amok in the latter part of 2021, BoE governor Andrew Bailey has since smartened up his act. Trouble is, the principal means within Bailey’s remit for tackling an over-heated but essentially weak economy is limited – sequentially raising interest rates is just about the only tool in his inflation-fighting box. And an unavoidable consequence can be tipping that economy, once cooling, into recession.

In early November, with inflation data still sticking around the 10%-mark, Bailey and the BoE forecasted a prolonged recession, stretching through next year and beyond into 2024. The official definition of entering recessionary status is two consecutive quarters of negative economic output. We’ve already had the first dose. According to the Office for National Statistics, there was a 0.2% contraction in JulySeptember’s third quarter, with gross domestic product falling by 0.6% between August and September.

ONS director Darren Morgan didn’t try to relax about any apparent lack of severity: “The quarterly fall was driven by manufacturing, which saw widespread declines across most industries,” he said. “Services were flat overall, but consumerfacing businesses fared badly, with a notable reduction in retail.”

After the shambolic but shortlived Truss government’s splurge of unfunded largesse demolished financial markets’ confidence in UK ability to service its debt burden, a gaping void of at least £55bn in public finances was

exposed. Prime minister Rishi Sunak and his chancellor Jeremy Hunt are now struggling to fill that hole with an unremitting diet of heavier taxation and spending cuts, hopefully to restore some stability. Unfortunately, their actions will also deepen the forthcoming recession.

How the motorcycle trade will cope in the face of such a grim outlook is obviously of most interest to us. The mounting cost-of-living crisis has already suppressed consumer appetite for bigger-ticket discretionary purchases. New bike sales have been softening since May, apart from a very minor respite in August. Inflation is a steadily growing factor too, as manufacturers pass on the increased prices they are paying for raw materials, components and logistics down their inventory shipment chains to showrooms.

One side-effect of the destructive Truss intervention was to force mortgage repayment

rates up, in some cases quadrupling them. Repeated BoE base interest rate rises are now compounding pressure on household borrowing into a cost-of-credit crisis. Those juicy PCP deals that have made large-capacity motorcycles appear so much more affordable will become progressively less attractive, as the complex calculations to make outcomes functional for both finance providers and recipients verge on the impossible. Hire-purchase defaults and repossessions are likely to be a common feature of the trade environment again.

Looking for upbeat angles is quite a challenge. But they do exist. Trade union militancy is mushrooming into a “winter of discontent”. Most prominently, the RMT union and others of a similar aggressive ilk have spawned a constant rash of strikes aimed at the extraction of inflation-busting wage hikes for their members. The resultant public transport disruption, if it continues unabated, could be a big booster for alternative ways of getting to work. I can imagine a lot of people dusting off historic motorcycle qualifications on their driving licences and considering a return to cheap sets of two wheels.

And I don’t believe the enthusiast biker inclination is going to dry up overnight, just because wallets have grown thinner. The recent boom in cost-conscious middleweight motorcycle models from a swathe of manufacturers has already answered that question. Gig-employer delivery fleet recruitment should be on a roll too as life becomes tougher, ensuring mobility sector turnover is maintained.

Not much comfort can be had from the fact that we aren’t alone on the fast lane to penury. The European Central Bank in Frankfurt recently admitted that eurozone inflation had reached 10.7% in October and

Those juicy PCP deals that have made large-capacity motorcycles appear so much more affordable will become progressively less attractive

International Share Prices

USA – SAVED BY THE BELL

The US Federal Reserve announced that annualised American consumer price inflation for October had dropped to 7.7%, sharply down from 8.2% in September. This news fuelled speculation about the pace of future interest-rate increases, but a warning from Fed chairman Jerome Powell stated that the US was still facing a serious recession.

Markets rallied dramatically in response. The blue-chip S&P 500 and Dow Jones Industrial Average respectively closed on big gains of 5.9% and 4.1% for the week. S&P’s MidCap 400 stacked on 5.3%. The tech-heavy NASDAQ Composite beat them all, 8.1% up.

After sliding earlier in the week, HarleyDavidson shares benefited from the Fed revelation and enjoyed a spectacular 5.6% hike on Thursday, followed by a further 2.2% improvement on Friday.

Harley’s sparky sideshow LiveWire wasn’t so electrifying, with consecutive losses throughout until Friday’s rebound of 4.8% undid some of the damage.

EUROPE – FULLY GASSED

Even though falling US inflation had no direct bearing on European sentiment, the general sense of bonhomie it elicited was reinforced by falling gas prices throughout Europe, thanks to warmer autumnal weather and greater than expected supplies.

The benefit to gas-dependent industrial majors throughout the eurozone was thus reflected in positive key market indices. Germany’s Xetra Dax in Frankfurt prospered by 5.7% and the Borsa Italiana FTSE MIB in Milan put on 5%. BMW, Volkswagen and Piaggio were notable winners.

JAPAN – CRUNCHING THE NUMBERS

With the Japanese quarterly corporate reporting season in full swing, Tokyo’s Nikkei 225 index responded to some excellent results, gaining 3.9%. Among motorcycle manufacturers, Honda was the only loser, somewhat unfairly judged because its car division grossly underperformed half-year earnings estimates, despite very strong turnover and profitability from bikes. Yamaha, which charted impressive nine-monthly recovery, got the greatest share price reward.