David Prosser's Outlook: Inflation will be back before you know it

The Governor'sgift of the gab; Mobile networks learn to share; The last of the dotcom survivors
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The Independent Online

With inflation stable at just 2.1 per cent in November for the second month running, we can all presumably relax this Christmas, happy in the knowledge that interest rate cuts are on their way early in the new year.

If only it were that simple unfortunately, there's every reason to think November's figure represents a plateau in inflation's climb, rather than a summit.

For one thing, the Office for National Statistics said inflation was stable in November because a sharp increase in the cost of fuel had been offset by lower utility bills. That, however, can't last. One supplier has already raised energy bills by 17 per cent this month and its rivals will follow.

Similarly, while the cost of food continues to rise well ahead of inflation, falls in the cost of vegetables have limited the impact to some extent. That, too, may well be temporary.

Above all, however, there is the widespread perception that inflation is higher than official figures suggest. The Bank of England's own survey, published last week, found that consumers thought inflation was currently running at 3.2 per cent. Those perceptions feed through into wage demands and ultimately become self-fulfilling.

In any case, such perceptions are often quite accurate. A useful piece of analysis from Alliance Trust suggests that, for many groups in society, inflation really is much higher. Older people, who spend a disproportionate amount of their incomes on food and energy bills, are suffering, says Alliance. So are the under-30s, for whom rents and education costs are spiralling.

Ironically, these groups will benefit less from interest rate reductions, as they're less likely to have mortgages. And they'll be squeezed further as prices keep rising. Inflation isn't quite dead just yet.

The Governor'sgift of the gab

Has Mervyn King put his foot in it once again? Having spent much of his session yesterday with the Treasury Select Committee denying all suggestions that he had fallen out with Alistair Darling, Mr King offered us a revelation. After a crisis management exercise last year, he said, it had become obvious that the UK regulatory system was not up to dealing with a major banking failure. The Governor had subsequently put his name to a memo calling for an urgent review of procedures.

Why had improvements not been made in time to prevent the Northern Rock debacle, Mr King was naturally asked. And there's the rub the Governor explained that Treasury officials had been working on an overhaul of the system, but that events had beaten them to it.

Read between the lines and this looks suspiciously like Mr King suggesting that the Northern Rock crisis might have been averted had it not been for those slow-coaches at the Treasury.

It's not the first time the Governor has been here, having previously suggested that Alistair Darling blocked a takeover approach from Lloyds TSB for Northern Rock that might have saved a lot of heartache.

This time, however, his comments could have even more serious ramifications. Who was in charge at the Treasury when that urgent memo arrived? Step forward Gordon Brown.

Mr King will need no reminding that he needs Messrs Brown and Darling to award him a second stint in office when his first term comes to an end next June. Not doing so would be a political scandal the Prime Minister and his Chancellor could do without. Still, the Governor keeps winding them up.

Mobile networks learn to share

The fact that it has taken until now for T-Mobile and 3 to come up with a network sharing agreement for 3G mobile phones is testament to just how complicated pooling technology and development can be. The two companies are desperate to improve the take-up of 3G T-Mobile markets mobiles as portable data devices while 3 is a 3G-only operator so the deal between the two of them announced yesterday makes absolute sense. Rather than maintaining and building two separate networks, the companies will combine their efforts.

This could be a crucial agreement in all sorts of ways. The first is that until mobile phone users have more faith in the quality of 3G networks they won't feel able to rely on their handsets for internet access and data provision. The use of mobiles for spoken conversations is now so ubiquitous that around 15 per cent of households no longer have a fixed line. But for 3G technology to achieve similar penetration, network coverage must be improved.

At first sight, the stats look good. All five network providers boast coverage of 80 per cent of the population, a threshold they had to achieve under the terms of their licences. However, in practice that means Britain's biggest cities are served well, but that vast swaths of the country are not properly covered by a 3G network pretty useless if you're trying to work on the train, say, let alone if you live outside a major urban centre.

Getting 3G coverage up to the standards of 2G would require the construction of up to 100,000 new masts, assuming each network goes it alone. If they were all to combine, the total might drop to around 25,000, so T-Mobile and 3 are making a useful start. They'll save money and time fewer awkward planning applications, for example by sharing the work on the roll-out.

This deal also puts the pressure on T-Mobile's and 3's rivals. Orange and Vodafone are already working on a similar network agreement, but have been doing so since February, with little ostensible progress. They will have to step up their efforts. O2, meanwhile, looks isolated. Unless it's prepared to spend big on network development, it will have to talk to competitors about joining one of their initiatives.

There's also the question of consolidation to consider. 3 has been widely tipped as a takeover target for one of its UK rivals. Yesterday both it and T-Mobile insisted their network sharing deal was not a prelude to such a deal, but the agreement will certainly make it much harder for any other mobile operator to come up with an offer.

The last of the dotcom survivors

So farewell then QXL Ricardo, or Tradus as the company now prefers to be known. The auction site's sale yesterday to South Africa's Naspers marks the end of an eventful 10 years as an independent entity.

Once upon a time back in 1997, that is two companies, one British, one American, independently came up with the same clever idea. Why not harness the power of the internet to put buyers and sellers of everything imaginable in touch with each other, and then take a cut of the sale proceeds?

It wasn't a bad notion. But while one of those companies, Ebay, has subsequently become a household name across the developed world, the other, QXL Ricardo, is big only in eastern Europe.

Still, QXL has outlived hundreds of dotcom darlings that raised huge sums from investors in the late nineties before crashing to earth with a bang. It may have been outgunned by Ebay, but it survived the dotcom fall-out, had the imagination to launch into untapped markets, and is now profitable. Moreover, while yesterday's take-out price in the region of 950m didn't quite match the 2bn valuation QXL reached at the height of the dotcom boom, it's not a bad deal for a business with 30m of sales in the last half-year.

The three-year legal battle fought in Poland, which once made QXL something of a laughing stock, has proved worth it in the end. While Ebay reigns supreme in all the markets on which it has focused, QXL has carved out a lucrative monopoly position in eastern Europe.