Outlook: City gossip that raises wider issues

Gordon Brown's press spokesman, Charlie Whelan, seems to have a particular liking for the expression "load of old bollocks" so had he not been in Brighton with more important matters on his mind, he would have been in his element yesterday fielding questions about a story that appeared in one of our rivals, The Times. On this occasion he would have been right. The story concerned the FT 's apparent scoop last Friday about a shift in government policy on EMU.

According to The Times there had been heavy buying, by Goldman Sachs in particular, of gilts futures ahead of this story appearing and millions had been made by doing so. The story then went on to draw the inference that since the wife of Goldman's chief economist, Gavyn Davies, works in Gordon Brown's office, Goldman might have known about the shift in policy too, or at least that the FT had been briefed about it. Dear, oh dear. Let's hope The Times has good libel lawyers, for the inference is nonsense, as is the suggestion that the position taken by Goldman's in the futures market was anything out of the ordinary. The joke is that, had Goldman's really known about the story and its likely effect on markets, the positions taken out would have been a great deal larger.

All the same, this malicious little piece of City gossip does raise some wider issues about the power of investment bankers over policymakers and markets. The best investment banks go to great lengths to ensure both that they are close to policymakers and have the very best of information on anything that might affect markets, and that they have opinion-formers of sufficient calibre to influence what policymakers do. It becomes hard to know, at times, just who is influencing whom. Is it investment bankers interpreting the information they derive from policymakers, or is it their own opinion-formers and the weight of their money in the markets that instruct the policymakers?

Some foreign central bankers and governments actually go so far as to consult big market players as to what reaction might be to this or that change of tack. Though it seems a bit far-fetched to believe this is what happens in Britain too, ministers are certainly very conscious of how their actions might play with the markets and the opinion formers that influence them.

By the same token, what might look to be something akin to insider trading by particular market players is often just inspired speculation. Goldman Sachs has been urging a more pro-EMU stance on the Government for months and has long taken the view that gilt yields should be converging with bond yields in Germany and France. Can anyone blame a proprietary trader for backing its view with a position in the market? Politicians may not like the power and influence of these people very much but, for the time being, it is the way of the world.