Mark Carney should have seen this problem coming.
If you start by giving the market guidance on the likely path of interest rates, investors will want a running commentary. If you then decline to defend your position, silence will be interpreted – or perhaps over-interpreted – as weakness.
Two months into the job, the governor of Bank of England finds himself in a pickle. The bond market appears convinced the splendid run of economic data over the summer is the real deal. That's why the yield on 10-year gilts has risen from 1.6% to 2.9% since the start of May. The market is saying the UK economy is finally out of the emergency room and the Bank's monetary policy committee (MPC) will be bounced by events into raising interest rates much sooner than 2016. This could happen either because the economic data will become hotter, causing unemployment to fall rapidly, or because inflation will become a danger, thus triggering one of the MPC's so-called "knockout" clauses.
But that's not Carney's view. He thinks the "fledgling" recovery is likely to require the fertilizer of ultra-low interest rates for three more years. Indeed, he has stated that rates will not necessarily rise even when unemployment falls to 7%, which the Bank expects to happen in 2016.
This is not some idle academic debate. This stuff matters because the real rate of interest in the economy – as dictated by gilt prices – is almost as important as the Bank rate set by the MPC. That's why the governor last month called market movements "unwarranted." But he was speaking when the 10-year yield was 2.4%. Now it's half a percentage point higher. If Carney and the MPC really are convinced the recovery is fragile, surely they have to try to stop the bond market's heavy boots trampling on the green shoots.
But what's a governor supposed to do? There are no easy answers. One option would be to inject more quantitative easing, thus demonstrating determination to stick to the ultra-loose path. But that would be highly risky. Investors might conclude the Bank was taking risks with inflation. Yields might then go even higher, making Carney's problem more acute.
Another answer would be to keep the market guessing and sound confident. We've had a taste of that already. Carney argued in Nottingham the other week that Bank rate determines 70% of borrowing rates. But this route is also problematic. What if yields continued to march upwards, say towards 4%? The MPC might look feeble if it did nothing. Worse, if Carney's fears were later realised and the recovery petered out, the Bank would stand accused of having done too little to combat a danger it itself identified.
All of which is to say that setting monetary policy is hard, and becoming harder. For the past four years, the setting has been obvious: keep it loose, or make it even looser. But the summer's run of strong numbers and surveys from the manufacturing, construction and services sectors raises the stakes. A mistake now could have dire consequences. The UK doesn't need another artificial house price boom, which is plainly occurring in parts of London; but a relapse for the whole economy would be a tragedy, especially for jobseekers.
One has to conclude that the policy of giving forward guidance on interest rates – the Carney innovation – is not helping matters. The desire to give consumers and businesses confidence that they will not be whacked by higher borrowing costs was understandable. But a fight with the gilt market, which is still programmed to take its cue from the US bond prices, would create a different type of uncertainty. Most consumers do not obsess over gilt yields – but businesses leaders making investment decisions certainly do care about the credibility of UK monetary policy.
The reality may be that forward guidance is a useful weapon when you're running the US Federal Reserve – after all, investors still hang on Ben Bernanke's every word. But, for central bankers elsewhere, it may just create new headaches. These are dangerous days for Carney. And, if he is right in thinking the bond market is being irrationally exuberant, for the recovery too.
Has Marc Bolland finally cracked it? Marks & Spencer's share price touched 500p on Friday for the first time since January 2008. The City, having been infuriated for two years by perpetual promises of better times around the next corner, thinks it smells substance.
Bolland has certainly had a stroke of good fortune in the form of the whoosh of improving consumer confidence. M&S's revamped autumn/winter ranges, on which he has staked his reputation by bringing in new management, can't fail to sell better than last year's collections. The buzz in the fashion press, notes the City, is also much improved.
"M&S could enter a cycle of rising margins and improving return on capital via a return to positive general merchandise life-for-like sales growth," reckon the enthusiastic analysts at HSBC.
Well, yes, it could. On the other hand, it would be unwise to place too much trust in a few glowing reviews for the handiwork of Belinda Earl, the new fashion chief. The fashion press, and the views of M&S shoppers, have collided many times in the past. Putting on a good catwalk show in London is not same as making the clothes look attractive in an under-invested store hundreds of miles away from Marble Arch.
Meanwhile, the huge sums invested in M&S's distribution and logistics in the past few years still have to earn a return. M&S is still half a decade behind the likes of Next in online retailing.
Good luck to Bolland, whose strategy for M&S has always seemed broadly correct - and the food division, his main problem on arrival in 2010, goes from strength to strength. But M&S has always been about the clothing product. Investors rarely get rich by waiting to see the proof of a turnaround; the money is made by getting in ahead of events. Even so, the City is investing an awful lot of faith in a single season's ranges.
We can't allow Terry Duddy of Home Retail Group to depart without reminding him, one last time, of his spectacularly awful share buyback programme. The Argos and Homebase group spent £150m, half the company's cash pile at the time, on buying back shares at an average of 233p between April 2010 and March 2011. By May 2012, the share price had fallen by two-thirds and Home Retail couldn't even afford to pay its shareholders a final dividend.
Duddy can retire in the knowledge that his "multi-channel" revamp of Argos is a success. The chain is less profitable than in the old days but it now looks fit to fight with Amazon. Even now, though, the group's share price has only recovered to 156p. The buyback (for which Oliver Stocken, former chairman, also deserves a dishonourable mention) was a shockingly poor use of shareholders' funds. What was wrong with a plain-vanilla special dividend?
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