Jeremy Warner's Outlook: Bank hawks want to wait until the Inflation Report before acting on interest rates

Channel Tunnel Rail Link fails to add up; Pepsi might struggle to bid for Danone

Thanks to the minutes, published for the first time yesterday, we now know. The day's events had no influence on policy at all, not because the Bank thought it might panic markets if it reacted, but because at the time the decision was made, there was no reliable information on the extent of the explosions, or their cause.

Policy was instead determined solely on economic grounds, and no committee member argued that it should be changed to reflect the enormity of unfolding events. What the minutes do show, however, is that regardless of the atrocities, the groundswell of support for an immediate interest rate cut had already reached a level where only the Governor's deciding vote ensured it wasn't immediately implemented. We can only guess at whether the Governor's vote reflected his naturally hawkish view on policy, or just the convention that in the event of a split vote the chair always opts for the status quo.

The case for a quarter-point cut seems to me to have become overwhelming over the past month, yet that plainly wasn't the view of the MPC majority, which wants to see more evidence of a slowdown before making up its mind.

This is a curiosity, as the economy seems only to be growing at all right now courtesy of ever higher levels of public spending. Growth in consumption seems to have ground to a halt, which in turn means the Government is increasingly having to borrow to finance its spending plans. Of course, there is some possibility that things will pick up again in the autumn. Yet to do so, they may need a helping hand and with inflation still no cause for concern, there's little to be gained in refusing it. The August Inflation Report will provide an opportunity to assess these issues in greater depth, the minutes observe. No wonder the stock market was again firm yesterday. Hints of future policy action don't come any clearer than that.

Channel Tunnel Rail Link fails to add up

What do you get if you spend £3.3bn digging a hole underneath east London? Answer: 20 minutes off the journey time to Paris and Brussels. The vast sums being spent on the Channel Tunnel Rail Link, largely at the taxpayers' expense, may bring a warm glow to the cheeks of train spotters, Europhiles and commercial estate agents in the vicinity of London's St Pancras station. But it was always going to be a devil of a job proving that the 68-mile link represents value for money, as the latest National Audit Office report shows.

The £3.3bn outlay is just for the second section of the link. The total cost is £6.2bn and for that businessmen will arrive at the Gare du Nord 35 minutes faster. This sort of money would have paid for an awful lot of hospital wards and schools - or even just badly needed improvements to Britain's creaking domestic rail network.

The NAO report is a timely reminder of just what a monument to political vanity the link has proved to be. It only got built in the first place because John Prescott shovelled in £2bn of direct grants and guaranteed a further £3.75bn of loans raised by the link's builder, London & Continental Railways, which were then miraculously kept off the public finances.

The traffic forecasts used to justify the link were, as usual, miles too optimistic. Using the Government's most conservative estimates, Eurostar is still carrying 1 million fewer passengers than it should be. Even counting in the benefits the link will bring by regenerating the Thames corridor, the line still fails to provide value for money.

The one bit of good news is that it is on time and more or less to budget. The bad news is that it will always struggle to make money, the latest estimate being that Eurostar will have to dip into the taxpayer's pocket for another £400m to make good the shortfall between its projected revenues and the amount it will have to pay to use the line.

If the CTRL were like the Channel Tunnel, which was funded entirely from the private sector, then its promoters would already be staring at bankruptcy. Luckily for LCR, the ample frame of the Deputy Prime Minister stands between them and the receivers.

Pepsi might struggle to bid for Danone

Danone is one of those hugely successful global corporations which belies France's reputation as an economic basket case.

There are any number of similar, world-class companies domiciled in France, from Renault and Louis Vuitton to Lafarge, Axa, and BNP Paribas, yet a bit like Japan - where on this front at least, there are marked similarities - the wider economy struggles to show decent levels of job creation, innovation and entrepreneurialism. Productivity is higher than in Britain but levels of employment and economic growth are much worse.

The reasons for this paradox are many and varied, but well expressed in France's attitude to its "national champions", which the political establishment is fiercely defensive of, understandably so given how little else it has to crow about these days. Danone is a case in point.

Over the past few days, the company has been subject to intense takeover speculation, with PepsiCo said to have hired bankers to see whether a deal can be done. There is nothing particularly new about this rumour. PepsiCo has wanted to buy Danone for at least the past 15 years as a hedge against its increasingly mature position in the global soft drinks market. Danone, by contrast, is in much faster growing areas of drinks and foods, with a strong emphasis on lifestyle and health products such as yogurts and mineral water.

In France, the company has almost iconic status; the idea that this symbol of French commercial success might be taken over by the ghastly Americans has already caused a political storm, with one government minister asserting firmly that everything possible would be done to oppose a hostile takeover. Another Chirac ally, Patrick Ollier, has described the idea of a foreign takeover of Danone as "scandalous". Yet with 86 per cent of Danone shares freely traded, the board would be hard pressed to resist if the price was right.

In theory, there is very little the French government could do about it. The matter would be decided according to competition criteria by the European Commission. But would the Commission go against the wishes of one of the union's largest member states? Is Europe a single market where companies can buy and sell freely provided they don't breach accepted competition law, or is it just a collection of nations still driven more by political considerations than market forces? It would make an interesting test, though I fear the answer is depressingly predictable.

As it happens, Danone is quite unlikely to be bid for by PepsiCo, which has already made plain that national sensitivities would prevent it launching a hostile approach. As for an agreed deal, the price demanded would make it hard for PepsiCo ever to produce a return. Danone is already a highly valued company. Add in the bid premium and it may be beyond what PepsiCo could justify to its shareholders.

The French government's response to the rumours is nonetheless indicative of all that's wrong with the French economy - protective, obstructive and unwelcoming. Economies thrive when they are open to competition - foreign and domestic. France seems determined to keep hers closed and exclusive. France's labour and industrial protections are stifling her economy, yet nobody seems willing to recognise it.

j.warner@independent.co.uk

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