Jeremy Warner's Outlook: As the economy slows further, should the Bank be slamming on the accelerator?

Mirror bidders hover, but will Sly play ball?; Boeing finally bags its man
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The Independent Online

First the good news. Revisions to official figures going back more than eight years show that the British economy is a bit bigger than previously thought. The bad news is that the pace of growth is slowing fast. The latest revisions show that gross domestic product (GDP) grew just 0.4 per cent in the first quarter, to give an annualised rate of 2.1 per cent. Previously the ONS had estimated annualised growth in the first quarter at 2.7 per cent. There's little reason to think things have improved since then. They may even have got a little bit worse.

Indeed, but for the public sector it's possible the economy isn't growing at all any longer. Manufacturing is contracting, high street spending has stalled and even the service sectors are looking decidedly soggy. The Chancellor's so far unbroken record of achieving his growth forecasts looks as if it is finally about to be shattered. He's forecasting 3-3.5 per cent growth this year. He'll need a minor miracle from here on in to achieve it. In economics, miracles are thin on the ground.

If the Chancellor has been spot on with his growth forecasts so far, he's not been nearly so far sighted with his predictions for the public finances, which for some while now have been far too optimistic. It can reasonably assumed that there will be an accelerator effect if he's now also got his growth forecast wrong.

Tax from North Sea oil will be coming in better than anticipated thanks to the soaraway oil price, but there will be little joy elsewhere for the Exchequer. Spending, income and corporation tax receipts may all fall short of forecast. The Chancellor thus faces a dilemma. Does he spend even more to keep the wheels of economic growth turning, or does he turn the taps down to meet his more straightened circumstances?

The dilemma is equally pointed for the Bank of England. It has successfully cooled the consumer boom and put the kibosh on the overheated housing market with repeated rises in interest rates, yet the economy is now slowing a little bit faster than it would have liked while special factors such as rising energy prices is keeping inflation on an upward trajectory. As Mervyn King, the Governor of the Bank of England, has pointed out, some of the factors which have kept the lid on prices, such as a pronounced shift in Britain's favour in the terms of trade, may now be coming to an end.

So will the Bank of England's Monetary Policy Committee come to the Chancellor's rescue and cut interest rates next week? My suspicion is that it won't, not with standing the fact that unexpectedly, two of its members voted for a cut at the last meeting. A slight pick up in mortgage lending in May suggests that the housing market isn't quite as dead as generally assumed.

Consumer credit also showed some growth. America is an awfully long way away, and the British economy is arguably more influenced by the Continent these days than the US, but it would look perverse to be cutting British rates of interest at a time when the Fed is still raising US rates. And if the Bank does act, it may smack a little of panic. The economy has slowed, but we are hardly yet staring recession in the face. If the Bank does cut, the markets might assume it knows something nasty that the rest of us don't.

Mirror bidders hover, but will Sly play ball?

What is it about national newspapers that makes even the most private of businessmen want to own them? Well, we sort of know the answer to that, don't we, though it is still something of a mystery why financiers as jealous of their reputation and secretive with their affairs as the Barclay brothers would want deliberately to court the limelight by buying The Daily Telegraph. Keep your head down, your money offshore, and your profile low is the adage of many of today's super rich.

Still, what's the point of money if you cannot flaunt it every now and again, and as Richard Desmond has shown with the Daily Express, with the right approach it's still possible to make more of it even from the most tired of titles. The emergence of a hitherto largely unknown businessman, Marcus Evans, as a possible buyer for Trinity Mirror's national titles, has again highlighted the allure of the print.

Again, the combination is an unlikely one. It is only possible to speculate on why the sponsor of such politically incorrect conferences as Urban and Expeditionary Warfare would want to own a newspaper with roots deep in the traditions of working class Britain, but the most likely reason is that they are the only big circulation titles left which it is remotely possible to buy.

Mirror sources admit to a series of meetings with Mr Evans – the first of them was nearly a year ago – yet insist that the titles are simply not for sale, or not at the £800m Mr Evans might be prepared to offer. Nor was the offer as proposed a remotely bankable one. No one yet knows where Mr Evans intends to get the money.

In the two and a bit years she's been there, Sly Bailey, Trinity Mirror's chief executive, has made some headway in convincing the City that there may after all be merit in keeping the national titles in the same stable as the group's myriad of regional newspapers. Pressure for a break-up has largely gone away.

That hasn't stopped interested buyers from prospecting. Yesterday's trading update, showing a much more serious decline in national newspaper advertising for the first half than in the regionals, might encourage them to believe they're in with a chance. Everything has got its price, and although Ms Bailey boasts of a return on sales from her national newspaper titles higher than the Daily Mail, it's hard to see where they go from here.

Those high returns might soon be worn away by the need for heavy investment in new presses and marketing. If Mr Evans can come up with the reddies, she might do well to accept his money. Eight hundred million looks a pretty good price to me, or was – as unkind cynics were saying in the City yesterday – Mr Evans' supposed interest only aired to distract attention from a dismal trading statement?

Boeing finally bags its man

Let's hope Jim McNerney, the new boss of Boeing, is more decisive when it comes to running a business than he is when choosing a job. Mr McNerney was Boeing's first choice for the poisoned chalice of chief executive at America's biggest defence and aerospace company as long ago as April. After agonising for a few weeks he decided he could not bear to leave his current berth at 3M and the rust-belt charms of Minnesota to join Boeing in the windy city of Chicago.

Three months later he has had a change of heart and decided to take up the challenge after all. Maybe it was the persistence and charm of the Boeing chairman, Lew Platt. Or maybe it was that, already being a non-executive on the Boeing board, he had seen all the other candidates at first hand and decided he could do a better job than any of them.

Whatever the explanation, he inherits a business with a lot to prove. Boeing has surrendered leadership of the airliner industry to Airbus and although it is doing well with its latest plane, the 787, Mr McNerney has a lot of ground to make up. Moreover, Boeing is still in shock from the ethics scandal which claimed the scalp of his predecessor Harry Stonecipher, though quite why having a consensual affair with a fellow executive should be a hanging offence still puzzles most folk on this side of the pond.

The chief executive before that, Phil Condit, fell foul of a business ethics scandal after he carelessly hired a Pentagon procurement official who had been steering contracts Boeing's way.

Mr McNerney promises his regime will be whiter than white and professes to see no distinction between ethical behaviour in public or private. He probably has all the advice he needs, but if he wants one more piece it would be: Just Say No – to the temptations of office that is, not the job.

j.warner@independent.co.uk

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