Outlook: Fed's bold move may struggle to lift business confidence

Harvey Pitt fall; Carphone Warehouse; Executive search

If this doesn't do the trick, nothing will. The full half-point was what the markets were asking of Alan Greenspan, chairman of the Federal Reserve, and that's what they got.

What does it mean for the Monetary Policy Committee's interest rate decision here in the UK, which will be announced at 12 o'clock today? Most of the problems with the UK economy are to do with poor business confidence internationally, rather than what's going on domestically. So one line of argument would be that by cutting rates so sharply last night, the Fed has already done the MPC's work. All the MPC needs to do is to sit back and see if it works. Another cut here wouldn't make any difference.

On the other hand, a cut of as much as a half point, taking the Fed funds rate to a barely believable level of just 1.25 per cent, might be interpreted as meaning things are a lot more difficult out there than generally thought. The Open Markets Committee statement, warning as it does that the geo-political situation is inhibiting spending, production and employment, seems to confirm that view. The MPC might in these circumstances think the best policy would be to join in. It might not do any good, but nor would it do any harm.

I'm not so sure. Repeated interest rate cuts, both in the US and here in Britain, have been successful in supporting demand and keeping the housing market buoyant, but they have done nothing to help investment and business spending, which is where the economic problem lies. Most business investment in any case finds it impossible to access the very low short-term interest rate the policy makers have ordered. Bankers are continuing to build in their own, incredibly high premiums for most business borrowing.

Strong demand in conjunction with low business investment will eventually prove inflationary. The MPC's decision is by no means clear cut.

Carphone Warehouse

Is it a bird, is it a plane? No, it's Charles Dunstone, chief executive of Carphone Warehouse. The City has always had a problem in understanding precisely what Carphone Warehouse is all about, and after yesterday's £65m acquisition of Opal Telecom it will be more confused still. Is Carphone a retailer or a telecoms company? That it is a bit of both is not what the analysts wanted to hear, and the shares duly lost 12 per cent of their value on hearing about Mr Dunstone's latest diversification.

This is a shame, because Opal actually seems a rather good buy. If it had been Tesco or Sainsbury announcing that they were going to use their supermarkets to distribute Opal's cheaper phone calls proposition, no one would have batted an eye lid. Indeed, when Centrica announced the similar acquisition of One.Tel last year, it was widely proclaimed an excellent deal. So why is Mr Dunstone struggling to get his message across?

Chiefly it is because his stock is followed mainly by retail analysts, and to them telecoms is an alien world which seems only to eat money. As it happens, Opal is one of the few alternative telecom operators that makes a healthy profit, and for Carphone the deal will be earnings enhancing from day one. But that's not really the point. There is still a high degree of scepticism in the City about a retailer that sells only one product, mobile phones. A mobile phones retailer which also wants to operate fixed-line networks is thought a very odd beast indeed.

The idea is none the less simple enough. Opal and companies like it are products of local loop deregulation. Once upon a time you would need to dial an access code or have a box connected to the telephone socket to use a cheaper alternative carrier via your local BT line. Last summer BT finally accepted that all it actually took was the flick of a switch. As a result, carrier pre-select promises to be a big growth market. The limiting factor for most of these operators remains the cost of customer acquisition, but if the service is offered alongside mobile phones through Carphone Warehouse stores, that cost falls dramatically.

If the City doesn't yet wholly buy the Carphone story, there is one thing it is beginning to wake up to – the threat these operators pose to British Telecom. BT shares were down nearly 3.5 per cent yesterday and that wasn't just because of nervousness about today's interims. The competitive challenge to BT's core monopoly may have taken a knock with the telecoms bust, but it hasn't gone away completely. The Carphone deal serves to illustrate how dangerous it might yet become.

Harvey Pitt fall

It was a good day to bury bad news. In the timing of his resignation, Harvey Pitt finally managed to show some of the political nous so sadly lacking during his fourteen month tenure as chairman of the Securities Exchange Commission. The announcement was made under cover of President Bush's mid-term election victories, thereby minimising the public embarrassment, both to Mr Pitt and the Administration.

The SEC long ago lost its reputation as the tough guy on the block, the model for securities regulation that everyone else wanted to emulate. Even under Mr Pitt's predecessor, Arthur Levitt, the SEC seemed half asleep at the switch. The collapse in acceptable standards of behaviour on Wall Street and in corporate America that occurred in the latter stages of the boom happened under Mr Levitt's watch, not Mr Pitt's. Mr Levitt would claim that was because he was outmanoeuvred in his attempts to impose tougher standards by powerful business lobbies but, whatever reason, the bottom line is the same. The SEC lost the plot well before Mr Pitt arrived.

Even so, Mr Pitt was the wrong appointment at the wrong time. A corporate lawyer who had served some of the biggest business interests in America, he was too much of a poacher turned gamekeeper to be credible. He always looked and sounded as if he would be more at home wheeler dealing at power lunches in the Four Seasons restaurant than rolling up his sleeves to pursue miscreant financiers.

Soon after he was appointed, he promised a "kinder and gentler SEC". Most people interpreted that to mean that the SEC would be soft on Wall Street and they were right. As more and more skeletons came leaping out of the post-bubble cupboard, Mr Pitt seemed wholly unequal to the task of clearing up the mess. Other, more politically savvy operators, such as the New York State Attorney General, Eliot Spitzer, inevitably stepped into the breach. Across the waterfront of investigation and reform, the SEC was upstaged by others.

The fiasco of William Webster's appointment to the Public Company Accounting Oversight Board was just the final straw. Mr Pitt's successor will have to be an altogether different animal if the SEC is to stand any chance of restoring its standing and authority. He will also need to sure that he has both the budget and the political backing to succeed.

Executive search

The search for a new chief executive at Emap is developing into a two horse race. Malcolm Wall, chief operating officer of United Business Media, is the bookies' favourite, but coming up fast on the outside is Stephen Carter, managing director of NTL. Mr Carter has already told NTL's Barclay Knapp that he cannot see a continued role for himself after the cable company completes its financial restructuring, and he wants out. But will there be a berth for him at Emap? It is only City tittle tattle, but one of the reasons why Clive Hollick, chief executive of United Business Media, is said to have turned down the chairmanship of NTL when it was offered to him by bondholders in the beleaguered cable company is because he fears he will soon be left without a chief operating officer at UBM. Small world, this executive search business.

jeremy.warner@independent.co.uk