Outlook: Swallows and hawks and Brown's Budget arithmetic

Bowker's progress; Buy Jupiter!
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The Independent Online

One swallow does not a summer make and nor does one set of encouraging figures from manufacturing add up to an industrial recovery. The surprise increase in factory output in February was largely down to one unnamed pharmaceutical company. It could easily be another false dawn, much as last August's unexpected jump in activity proved to be. Higher oil prices could quickly wipe out any nascent recovery in manufacturing. Moreover, yesterday's trade figures continue to point to hard times on the factory floor with exports of manufactured goods down by some 2.5 per cent in February.

One swallow does not a summer make and nor does one set of encouraging figures from manufacturing add up to an industrial recovery. The surprise increase in factory output in February was largely down to one unnamed pharmaceutical company. It could easily be another false dawn, much as last August's unexpected jump in activity proved to be. Higher oil prices could quickly wipe out any nascent recovery in manufacturing. Moreover, yesterday's trade figures continue to point to hard times on the factory floor with exports of manufactured goods down by some 2.5 per cent in February.

The hawks on the Monetary Policy are looking for any excuse to push interest rates higher. Evidence that Britain's two-speed economy was beginning to run at one pace with manufacturing catching up on the service sector, would represent powerful ammunition. But on the assumption that the MPC had sight of the latest output figures before last week's rates meeting, it is clear that the evidence was not deemed nearly sufficient to tip the balance towards a tightening in monetary policy.

In any case, the MPC, like the rest of us, is waiting for next week's Budget to see how much of its work is done for it by Gordon Brown. A package which raised £3bn to £5bn in new taxes could represent a sufficiently large fiscal tightening to keep the hawks at bay for a little longer yet. Everything depends, of course, on how deeply the Chancellor chooses to dip into the pockets of voters to fund increased spending on the National Health Service. VAT is a deeply regressive tax and raising it would cause howls of protest. National Insurance is the Chancellor's favoured target but this is a tax by any other name and to raise any serious sums he would need to increase the main rates rather than just lifting the ceiling.

Increasing stamp duty on residential property transactions and presenting it as a means of taking the steam out of an overheating housing market is another option. But as the Council of Mortgage Lenders points out, if the Chancellor was being equitable he ought actually to raise the threshold at which stamp duty is paid in order to keep pace with house price inflation. Not long to wait now.

Bowker's progress

It is now five months since Richard Bowker took over as chairman of the Strategic Rail Authority and, although he still has the good wishes of the industry behind him, the honeymoon will not last forever. His achievements since last November boil down to re-letting the Chiltern Trains franchise, arranging a short-term fix on the East Coast Mainline and giving National Express £115m of taxpayers money to sort out the mess in its Central Trains and ScotRail franchises.

Admittedly, this is more than was achieved in the preceeding five months by his predecessor, Sir Alastair Morton, who spent his last demob-happy days flagellating Stephen Byers and anyone else who dared step within range.

But it is not the big picture stuff that will revolutionise the railways and enable them to carry 50 per cent more passengers in the next decade. The real priorities are to re-let the big south-east commuter franchises on long-term contracts and sort out the east and west coast mainlines. Here, progress has been pedestrian.

It is now a year since the SRA announced a heads of agreement with Stagecoach to invest £1.7bn in South West Trains as part of a new 20-year franchise. But no actual agreement has been signed. A similar agreement involving Central Trains is also stuck in the works and awaiting a signature even though it is now eight months since Go-Ahead was selected to take over from the much-maligned Connex.

On the West Coast Mainline, there should have been an announcement two months ago setting out how capacity on the upgraded line was to be shared between Virgin Trains and freight operators. Now it looks as if the SRA will be lucky to get an announcement out before the first of Sir Richard Branson's gleaming new £1bn Pendolino train fleet enters service in June. The trains will only have two months to show off their paces before Railtrack makes life a misery again for weekend travellers by digging up the line between Hemel Hempstead and Milton Keynes, forcing passengers to take a one and a half hour detour by bus.As for the east coast mainline, Mr Bowker has not even committed himself to a date for when a long-term franchise will be put out to re-tender.

Together, these four projects involve investment of some £15bn and, between them, will make a huge contribution towards improving the lot of passengers and attracting car drivers off the roads.

Mr Bowker is rightly regarded as a breathe of fresh air in the rail industry, someone with a "can do" attitude who has the support of the Government and the clout to get things done. But it would be nice to see him making his mark soon.

Buy Jupiter!

Jupiter Asset Management has caused plenty of anguish for Commerzbank since the Germans came to town in 1995, mainly through protracted legal disputes with the business's founder, John Duffield.

Having spent millions over the last seven years to support one of the most valuable brands in retail fund management at the same time as settling almost all the outstanding disputes with Mr Duffield, Commerzbank is now throwing in the towel.

Crippled by its exposure to the collapse of the Kirch media empire, Commerzbank needs to raise some cash fast and has resorted to putting the crown jewels up for sale. It is unlikely to get back the £670m it has paid for Jupiter, making the whole affair even more sorry than it is already.

To re-cap. Commerzbank bought Jupiter for £170m when it was a quoted company in 1995, immediately returning one-quarter of the equity to its fund managers under a five-year earn out. The problems began when Mr Duffield and Commerzbank could not agree about the level of profits in 1999. The Germans in the end gave way to Mr Duffield's rosier interpretation of the numbers and paid £505m to buy back the remaining equity. Even so, it did not stop Mr Duffield left Jupiter, subsequently winning £5m for unfair dismissal.

In today's market Jupiter is likely to fetch perhaps between £500m and £600m. Doubtless Mr Duffield would love to buy the business back for less than he sold it, but don't hold your breath for him to sit down with the German managers he is said to have referred to as the Gestapo.

There will be no shortage of interest in acquiring the Jupiter name alone, along with some popular unit trusts and even a decent smattering of institutional business.

Equally attractive will be Jupiter's renowned investment managers. Like Mr Duffield, they have made a mint out of Commerzbank, although in their case not what they might consider enough to retire on. To retain them will require some tasty incentives. So another earn-out looms. No one would suggest that Commerzbank's woes were down to one man. But whoever buys Jupiter this time round had better be stronger in people management than fund management.

m.harrison@independent.co.uk

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