Business View: While the weather's cold keep interest rates frozen

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The Independent Online
The sale signs have been up at the shops in Canary Wharf for some days now. And if retailing is doing badly next door to two of the most successful investment banks in Europe - CSFB and Morgan Stanley - what hope is there on the high streets of Huddersfield and Honiton?

Yet, if you believe the minutes of the Monetary Policy Committee (MPC), Britain is so healthy that the economy is in danger of overheating. Accordingly we can all look forward to an interest rate rise in the hungover first few days of the new millennium.

The problem that is worrying the MPC members appears to be pay. Wage inflation is running ahead of retail price inflation and is in danger of pulling prices up with it. Or so the MPC thinks. Such was their concern at the last MPC meeting that three members - the usually sensible John Vickers, the avowedly contrarian Willem Buiter and the worryingly influential Mervyn King - pushed for a quarter point rise this month.

For once Mr King broke ranks with his chums inside the Bank of England. This could be an indicator that the accusations that they act as a cabal are starting to hit home. However, I feel it is more likely that what this really indicates is that they will all vote together this month for a rate rise, thereby forcing the issue.

I have, however, to disagree with this strategy. January is not the time to be trying to put the lid on wage inflation. Very few pay deals are struck in January. The wage round tends not to get going until the spring at the earliest, so if you are trying to control inflation through controlling wages, this is not the time to be doing it.

Also the effect of the January sales - or should I say the late December, January and early February sales as they have now become - and the deflationary influence of the growing power of the e-commerce sector will not have fed through to the statistics that the MPC will use to help them make their January decision.

Now this might be a futile suggestion, especially if Mr King is feeling as hawkish as his friend Doug Ellis, the Aston Villa boss. But might not the MPC be more wise to hold fire on an interest rate hike until February? They can see whether a difficult Christmas on the high street has eased some of the inflationary pressures.

The market appears to think that any hike in rates will be a short-term measure, and that we will see interest rates back below 5 per cent in the not too distant future. So maybe it is better to avoid the Grand Old Duke of York school of economy management and be patient.

Hoerner's just deserts

PATIENCE, though, is running short for investors in Arcadia. John Hoerner was a City darling only a couple of years ago, having turned around the ailing Debenhams department store chain and masterminded a coup to lead a restructuring of Burton Group. But the decision to spin off Debenhams from the group, which is now called Arcadia, has not proved a success. Mr Hoerner's reaction to Arcadia's trading problems - to buy a portfolio of poorly performing Sears stores from Philip Green - appeared foolish at the time; in retrospect it has become clear that if Mr Green is selling you should not be buying.

Those who might feel sympathy for Mr Hoerner now should realise that he showed little mercy to others during his rapid ascent; nor has he many doubts about his own abilities. After all, in business, you reap what you sow.