A rate deal cooked up to restore harmony

COMMENT

Kenneth Clarke and Eddie George pulled out all the stops to present a united front on the decision to cut rates by a quarter point. We were saved the old chestnut about singing from the same hymnbook, but the intention was clear: a state of harmony has been restored to the previously discordant relationship between the Chancellor and the Governor of the Bank of England. Most of us are left unconvinced. The suspicion is that the Chancellor wanted more and the Governor wanted less; that a quarter point down was the deal cooked up before the meeting.

Such no doubt unworthy thoughts are inevitable after the clash between Kenneth Clarke and Eddie George over the summer. While that had the fortunate side-effect of turning the drab pursuit of economic policy by the dessicated number-crunchers of the Treasury and the Bank into a spectator sport, the players were not so happy. Despite his protestations to the contrary, Mr George was left in a highly vulnerable position. A further overruling at the hands of Mr Clarke would have done nothing for his credibility.

And yet much the same could be said of the Chancellor. If he had ridden roughshod over the Governor in pressing for a cut in rates, critics would have had a field day. The charge would be that the new monetary arrangements had comprehensively broken down and we were back to interest rates set solely according to the dials of the political and electoral imperatives of the day.

The need for a compromise was thus pressing from both sides. How fortunate, from this perspective, that according to Mr George, the new data since the Bank's November inflation report had pointed so conclusively to a further downward revision in the Bank's projection for inflation two years hence. How fortunate, too, that that earlier forecast of inflation teetered on the brink of the target of 2.5 per cent or less.

Yet it is possible to take a more straightforward view of the decision. As Mr George acknowledged yesterday, growth has slowed down more than expected and cost pressures have subsided. In the Bank's view of the world, the chances are now that the inflation target will be achieved.

The new framework for setting interest rates has always marked an uneasy compromise between full-blooded independence and the previous regime, which gave so much scope for politically inspired changes. It represents the furthest step towards independence that is politically acceptable - witness New Labour's reluctance to go much further. Despite the doubts about credibility, it has made interest rate decisions far more transparent and has forced both the Governor and the Chancellor to be more confident that they can defend their viewpoints. Whatever the genesis of yesterday's cut in rates, the new arrangements have improved the conduct of monetary policy.

Examination for

the spin doctors

To many, Amec's spot of bother with the Takeover Panel must look like more of a good laugh than a matter to be taken seriously. Public relations has long been the unregulated, wild frontier of investment banking (to the eternal gratitude of many journalists) and to see Amec's PR firm coming a cropper by using that time-honoured practice of a little leak here, a little manipulation there, is causing much merriment among those who follow these things.

There is a serious side to it as well, however. By breaking the Takeover Code and, according to Kvaerner, possibly securities law too, Amec's PR advisers may have done their client a great deal of damage. The embarrassment factor alone is bad enough. It both discredits and diverts attention from Amec's underlying defence. To cap it all, Kvaerner is now threatening to sue Amec should its bid fail. Such cases are notoriously difficult to make stand up, but this is none the less heavy-duty stuff. As to the wider question of whether the public relations industry should be further constrained, this is perhaps an issue on which a journalist is not best positioned to comment. In such cases it is all too easy to shoot the messenger. Often these things are done in the perceived interests of the client if not on its outright instructions. The fundamental problem is that when applied to the securities industry, many of the traditional methods of the spin doctor - off-the-record briefings, a favour for a favour, the inspired leak and the manipulative spin - become highly contentious if not outright illegal.

Furthermore, unlike other areas of PR, these are methods applied not just to the narrow confines of the fourth estate. They are also directed, as in this case, at investment analysts and sometimes institutional shareholders. The PR industry often talks of cleaning up its act, of introducing proper codes of conduct and professional disciplines. But old methods die hard.

East Midlands clears

out the silver

In mid-1994, East Midlands became the first of the dowdy regional electricity companies to tart itself up by announcing that it planned to return large sums to shareholders. Last year's glamour puss is today's wallflower. For some obscure reason East Midlands is one of only three Recs not to have received a takeover offer, despite the fancy clothes and the gaudy make-up, which most of the rest copied. There is obviously no justice on the dance floor.

Nigel Rudd, the chairman who took over in 1994, and Norman Askew, the chief executive, set out deliberately to get rid of previous acquisitions, concentrate on the core electricity business and borrow to reach a more financially efficient gearing level. The shareholder value they have managed to deliver as a result is impressive.

The first payout, of pounds 185m in the form of a special dividend, came in November 1994, days before Trafalgar House set the sector alight by bidding for Northern Electric. Since then there has been pounds 300m worth of National Grid shares and yesterday the announcement of plans to take the total handout over 16 months to more than pounds 720m, with a pounds 238m special dividend next March. That is a staggering amount of money for a company that, at last night's price and allowing for the payment of the special dividend, was worth just over pounds 1.15bn. It means East Midlands will have given back nearly 40 per cent of its value to shareholders, excluding ordinary dividends.

You can argue about the morality, but from shareholders' point of view, clearing out the family siliver so effectively before it is taken away by a Labour Party windfall profits tax seems like a pretty good idea.