A moment of temptation for the Chancellor

'Here's an heretical thought: maybe Kenneth Clarke has the electoral outlook on his mind - in particular the odds on an election this year rather than next, following Emma Nicholson's defection'
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The received wisdom in the City is that Kenneth Clarke will cut interest rates soon - although not tomorrow when he meets Eddie George in the first monthly monetary meeting of the year. But there is certainly more than an outside chance that the Chancellor will take a leaf out of the German Bundesbank's book and wrong-foot the markets.

The official theology of interest rate decisions is that they are taken on the basis of the outlook for inflation two years hence. Provided that underlying inflation is set to come in below the effective target of 2.5 per cent, rates can be cut. We are asked to believe that political considerations, including any unseemly thoughts about the date of the election, are set on one side. Instead the augurers of inflation targeting in the Treasury and the Bank of England pore over the entrails of economic data between each monthly monetary meeting to see whether the new information has changed the outlook in two years' time.

Suspend your disbelief for a moment and take the doctrine at face value. What are the entrails telling the official soothsayers? In sum, since rates were cut on 13 December by a quarter-point, the stalling in the manufacturing economy has become even more serious, but there have been some green shoots of a revival in consumption. The question is which way this tug of forces will pull the economy in 1996.

We now know that manufacturing production in the three months ending November was fractionally down on the previous three months - the first such decline for two years. Prospects are blighted not just by a big inventory overhang but by the seemingly inexorable slide of Germany and France into recession. With a quarter of visible exports going to these two key economies, manufacturers know better than most that no man is an island.

On the other hand, the CBI distributive trades survey reported last week that retailers had enjoyed their best Christmas for two years. There are signs that the housing recovery might be under way. The signals from monetary data are also set green.

The obvious thing to do in such circumstances is to wait and see. The outlook for inflation in two years will be so much clearer in a month, Chancellor. But here's an heretical thought: maybe Kenneth Clarke also has the electoral outlook on his mind - in particular the increased odds on an election this year rather than next, following Emma Nicholson's defection.

With the sands of the electoral hourglass running faster than he might have hoped, Mr Clarke has to make sure that a downwind from the manufacturing sector does not knock the consumer off his perch. A rash of lay-offs is just the reminder of job insecurity that could knock consumer confidence for six, so dashing Treasury expectations that consumers will save the day.

When Kenneth Clarke and Eddie George meet, they will have not just the latest unemployment and earnings figures in front of them but also the retail price inflation and sales figures due to be released on Thursday. If these convey the message of continued success in the battle against inflation together with trouble on the jobs front, the temptation for Mr Clarke to grab his chance while he can and go the extra quarter point now could prove too much for him to resist.

Bagging the carpetbaggers

Lottery culture rules, OK, and it's not just Camelot and scratch cards. It is the building societies, too. The hordes chasing the easy money of building society conversion, or "carpetbaggers" as Woolwich has christened them, have become as much a feature of the 1990s as the lottery queue. The whole thing is getting out of hand.

What to do about it? Safeguards were put into the 1986 building societies legislation, restricting cash handouts to members of more than two years' standing, but this was easily circumvented and does not cover share distributions. The original intention of the Act, to reduce destabilising flows of money between societies as they approached the conversion stage, simply did not work.

In practice, most societies have tackled the problem with a blunt instrument. They have upped their minimum deposits to limit the number of new investors. Woolwich raised its minimum to pounds 500 last summer and Alliance to pounds 5,000 before Christmas. The drawback is that this gives clear confirmation that something is in the wind, and it loads the dice heavily in favour of more prosperous punters with the cash to put a few thousand into several societies at once.

A public company in such a position would have suspended its shares pending an announcement. Perhaps societies should take a leaf out of the Stock Exchange's book. They should be told to take action immediately there is a leak or strong speculation, by announcing that all new accounts opened from that date are ineligible for a handout. If they change their minds and stay mutual, no harm is done, but if they do convert the carpetbaggers will have missed their chance.

Forte's eight codgers extract their premium

The Council of Forte and the quite out of proportion pounds 50m it is to receive for its share stake in the beleaguered hotels group may seem like something of a side issue set against the cut-and-thrust of the main takeover battle but there are issues of importance here. Set up in the early 20th century to promote temperance, the council continues to exercise voting control over the company in which it owns less than 0.1 per cent of the capital, all vestige of its original purpose having long since gone. Nor does the anachronistic nature of this bizarre little organisation stop there. The council even has its own "medical adviser", Dr Walter Somerville of 149 Harley Street. The eight old codgers who make up the council, however, are clearly nobody's fools. The premium they have extracted from Granada for "control" is a very substantial one.

Forte's spin doctors have tried to make this into something of a scandal for it appears that Granada first tried to persuade the council to sell its stake without restrictions, which would have enabled it to declare victory regardless of the view of other shareholders. Outrage! When you think about it, however, the scandal is really the other way round. It is absurd that the council could have been allowed to continue with its all-powerful position, eventually securing a price that, if distributed among other investors, would have been worth an extra 2p a share on the bid price.

Granada may have been a touch complacent when it launched its bid and its motives and reasoning may still leave a lot to be desired. But a company that can allow such a ridiculous anomaly as the Council of Forte to go undealt with cannot deserve much sympathy. Likewise yesterday's death- bed repentance, Sir Rocco Forte's agreement to split his roles as chairman and chief executive, looks too little too late. City sentiment can move dramatically, but Forte's position looks increasingly desperate.

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