The Chancellor's optimistic view looks flawed

"Caught in the crossfire between manufacturers forcing up prices and consumers who can't and won't pay, retailers have taken it on the nose"

Since the beginning of 1994 the British economy has been subjected to two price shocks. Firstly, there was the big rise in commodity prices. Then there was the sudden swoon in sterling in the first half of 1995. The key question is what this will do to prices in the shops and the rate of inflation targeted by the Government.

The markets staged a mini-swoon themselves yesterday on the disappointing figures on both input and output producer price inflation. The hope had been that the recent easing in commodity prices would feed through to the prices paid by manufacturers. In the event, the effects of sterling weakness prevailed.

There was even more disheartening news on factory gate inflation. With output flat and evidence that unwanted inventories were accumulating, core output inflation was expected to fall back. Exactly the opposite is occurring - manufacturers are pushing through much bigger price increases than had been expected.

The persistence of input price inflation and the ability of manufacturers to pass higher costs on to their customers cast an inevitable shadow over the prospects for retail price inflation. Even before these latest producer price figures, headline inflation was expected to rise to 3.7 per cent and the underlying rate to 3 per cent. Retailers, it was thought, could not repeat the deep discounts they staged in last summer's sales.

Such behaviour on the part of retailers has formed an important part in keeping retail price inflation down over the past two and a half years. A considerable part of the effect of higher cost inflation has been mitigated so far by a compression of retailers' margins. Caught in the crossfire between manufacturers forcing up prices and consumers who can't and won't pay, retailers have taken it on the nose.

This Thursday's release of retail price inflation will reveal whether the Government can continue to rely upon a highly competitive high street to help it out of a tight corner. The signs are, however, that the Chancellor's optimistic view of the inflation outlook is flawed. Eddie George's warnings look less like crying wolf than they have.

Travel companies get it wrong again

While the rest of the country basks in the heat wave, holiday companies seem to have created a little rain cloud all of their own to douse their fortunes with. Everyone knew that this summer's blistering weather must be crucifying the holiday companies, who rely for their business largely on the British people's love affair with the sun. Yesterday's profits warning from Airtours was official confirmation. With a long hot summer, and the continued absence of the feel-good factor, many holidaymakers have chosen Devon in preference to Corfu. But it is not just the weather; as has happened so often in the past, the tour operators simply overestimated the number of holidays people would want to buy.

The travel sector has long been plagued with a boom-bust cycle that boosts profits on the way up only to lay companies low on the way down. Think of Court Line, Horizon and International Leisure Group, the Intasun operator run by Harry Goodman, which went belly up in 1991.

Airtours is no ILG. It has a much stronger balance sheet. But the fact remains that the travel industry has called the market wrong yet again. A forecast of a 5 per cent rise in capacity has failed to materialise, resulting in loads of holidays on offer with discounts on their discounts.

It is ironic that it should be Airtours that is the first travel group of the summer to wilt. The company was making bold claims earlier this year that it had the market taped. The theory was that with better systems, economies of scale and the acquisition of less cyclical overseas companies, it might avoid the pitfalls that have caused the spectacular collapses of the past.

Britain's obsession with last-minute deals is part of the problem. Every airline seat or hotel room left empty is money off the bottom line. Margins are so thin that an aircraft has to sell every seat to make the trip pay.

In fairness, much has changed from the old days when even sizeable travel companies would succumb to deep discounts the moment the market turned down. Systems are genuinely more sophisticated and the largest travel groups have been buying overseas companies to ensure they are less reliant on the bargain-hunting UK market. But yesterday's announcement shows that even the big boys have yet to shake off the ghosts of the past.

Changes needed to deal with insider trading

Britain's record in detecting, prosecuting and punishing insider traders isn't much worse than anyone else's. That is not saying much, however; something plainly needs to be done to make it better. Though we have tough and specific insider trading law, it does not seem to be acting as much of a deterrent. It is therefore little surprise that the authorities should be seeking ways of making it easier to bring offenders to book, even if this means less severe punishments. The time has gone when the Crown Prosecution Service felt it had to have a go at everything, and that only a full-blown criminal trial could do the offence justice. Instead, there is an increasing tendency to let the front-line City regulators play their hand, challenging firms and individuals on the strength of their own rule books. The burden of proof in these civil procedures is much lower, which means that the chances of conviction are considerably higher.

Swiss Bank Corporation appears to be a case in point. The Department of Trade and Industry, the only authority with the powers to investigate and prosecute insider dealing, has decided not to proceed to a court case against SBC over its controversial dealings in electricity shares while advising Trafalgar House in its attempted takeover of Northern Electric earlier this year. Instead, it has handed the case back to the Securities and Futures Authority, the City investment banking watchdog, which is looking to censure SBC for an alleged breach of rules. Being a civil rather than a criminal procedure, it should facilitate the process of making an example out of SBC.The front-line regulators such as the SFA have been calling for some time for greater support in pursuing alleged wrong- doers outside the criminal courts, both on insider trading and market manipulation, threatening them with sizeable fines, bans and negative publicity. Shifting a growing number of cases their way, even potentially important ones like SBC, is part of this process.

But it does not overcome the narrow limits imposed by the current legislation on what the front-line regulators can do. Investigative and prosecution powers on insider dealing are the sole preserve of the DTI. A real shift in practice will need legislation. The Labour Party has hinted at it but it cannot but help be low on any new government's list of priorities. These are not changes to be expected in the foreseeable future.

News
peopleJust weeks after he created dress for Alamuddin-Clooney wedding
News
The Banksy image in Folkestone before it was vandalised
people
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

PROMOTED VIDEO
Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
News
i100
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
News
ebooksAn unforgettable anthology of contemporary reportage
Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album