Michael Harrison's Outlook: Governor fails to be boring as the guessing game over interest rates takes another twist

Royal Mail: Darling fails to deliver; BA cabin crew strike revisited; Snow on the tracks, blood on the boil
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The Independent Online

Alan Greenspan once famously told an audience that if he'd made himself clear then they had probably misunderstood what he said. Is Mervyn King developing the same Delphic touch as his fellow former central banker? The Governor of the Bank of England's speech to the Birmingham Chamber of Commerce on Tuesday night was read in several ways. One interpretation was that the Bank was signalling we had reached the top of the interest rate-raising cycle. Another analysis suggested he was warning of more interest rate rises to come. A third reading was that his remarks were mainly designed as a warning shot across the bows of pay negotiators.

Yesterday, the message was further confused by the minutes from this month's meeting of the Bank's Monetary Policy Committee revealing that the vote to increase rates was much closer than thought. It only goes to show that attempting to forecast the direction of interest rates is very often a mug's game - although one which the City and the rest of us are obliged to play.

The other notable feature of the minutes is that they reveal Mr King used his deciding vote to raise rates and therefore change policy - the first time any governor has acted in this way since the Bank was given its independence a decade ago. Not only this, he pushed through the increase when three of the other four Bank representatives voted for no change. Again, it is unusual for the Governor to find himself siding with the committee's independent members rather than his fellow insiders.

Mr King reassured the good businessmen of Birmingham that he had not abandoned his "ambition to be boring". At the moment, however, he is proving anything but and it makes the job of tracking the next movement in monetary policy that much harder.

Royal Mail: Darling fails to deliver

It was never going to be the easiest prospectus to write. Who would want shares in a company which is technically bankrupt, saddled with a £5.6bn pension deficit and controlled by a single, unpredictable shareholder - even if they were being given away for free?

In the event, it was not a document that Alistair Darling had any intention of signing off in his capacity as Trade and Industry Secretary. The Royal Mail chairman Allan Leighton's ambitious plan to gift 20 per cent of the business to its workforce through an employee share ownership scheme will never see the light of day. Instead, the Government has opted for a much more modest arrangement whereby its 190,000 workers will be able to benefit from the rising value of the state-owned company through a phantom shares scheme.

This neatly avoids any hit to the public finances, which Mr Darling will be thankful for if and when he becomes Chancellor of the Exchequer in a Gordon Brown administration. Just as important, it avoids the Government having to pilot the necessary primary legislation through the Commons in the teeth of mass opposition from its own backbenchers.

Royal Mail calculates that the phantom share scheme will put a value of £4bn on the entire business but that is pure guesswork. These shares will not pay a dividend and they can only be sold back to fellow Royal Mail workers. They would be mad not to take the free phantom shares on offer. It will be interesting to see how many are prepared to pay good money to increase their stake.

BA cabin crew strike revisited

My criticisms earlier in the week of the strike action called by the British Airways cabin crew union Bassa have produced a bulging inbox, including one missive sent by a BA employee from their sick bed. From this it is clear that while the actions of the union may be misguided, the grievances which lie behind it are genuine and heartfelt. It is self-evident from the 96 per cent vote in favour of industrial action that the unrest has not been fomented by a small bunch of trigger-happy militants. It has also been pointed out that the headline figures which BA quote for absence among cabin crew (22 days a year two years ago compared with 12 at present) and guaranteed pay levels (starting at £22,000) are the result of fancy arithmetic gymnastics. Then again, the assertion by Jack Dromey, the deputy general secretary of the Transport & General Workers Union, that some BA cabin crew are being paid less than the minimum wage, also belongs with the fairies. Sadly, truth tends to be the first casualty of industrial disputes as well as war.

Yesterday's mini-olive branch from the T&G, scrapping the first day of next week's three-day strike in order to allow more time for a negotiated settlement, suggests the two sides have put rhetoric aside and may even be inching towards a deal. To be clear, Willie Walsh, BA's chief executive, needs to prevail in this battle of wills. But he cannot afford to adopt a "win at all costs" mentality. Nor can he be seen to have rubbed the unions' noses in it. That will only store up more trouble for the future.

Snow on the tracks, blood on the boil

A sprinkling of snow settles across southern England and the rail network descends into chaos. In the Swiss ski resort of Davos another foot of the stuff falls from the skies and yet the World Economic Forum runs like clockwork. Ah, we say, but those metronomically efficient Swiss types are used to this sort of thing whereas precipitation of almost any kind invariably leaves Network Rail in a state of paralysis. A spokesman confesses that it was not the best of mornings even though it knew the snow was coming. "Our weather teams were out in force but their efforts have not produced the results we were hoping for."

Not that this is likely to prevent another bumper pay day for the executives. Last year, after the predictable outcry over their £1m bonus payments, Network Rail agreed to make the performance targets more stretching. Perhaps it should tweak the scheme again so that foreseeable and preventable disruption, like yesterday's rail gridlock, counts against them double.