Like the dog that didn't bark, the silence of the Bank of England offers an eloquent clue to Eddie George's preference. The Governor was doubtless at pains to avoid being boxed into another corner opposing the Chancellor. But he is unlikely to have turned over a new leaf. Given the evidence of a pick-up in retail sales in the final quarter of 1995 and the buoyancy of both broad and narrow money, Mr George would almost certainly have preferred delay. After all, the two of them were due to meet in just three weeks' time on 7 February.
But if a week is a long time in politics, how much more so would three weeks be to this government drowning in a sea of troubles. Not for the first time, Mr Clarke has had to throw a lifebelt into the water. Politics are firmly back in the driving seat of monetary policy and the new monetary arrangements which were supposed to give the Bank so much more discretion are proving an illusory bargain for Mr George. Britain seems no closer to a stable framework of counter-inflationary policy.
Yet taken on its merits, the decision was the right one, even though it would have looked more credible if it had been delayed to February, a week before the Bank of England's Inflation Report. While there are some early indications of a pick-up in retail spending, the stagnation of manufacturing production and the plight of construction are hard realities. As the Chancellor himself said, the downturn in Britain's export markets is contributing to the slowdown in the economy.
This is the real storm cloud that threatens to break. The deceleration in the German and French economies has occurred much more quickly than anyone anticipated. Most economists think the easing in monetary policy by the German and French central banks will lead to a bounce-back in the second half of 1996. This looks like wishful thinking.
At the still centre of the storm is the flagging German economy. If Germany remains the powerhouse of the European economy it is one running on half- empty. With the mark painfully over-valued, Germany seems set to follow Britain's earlier example of de-industrialisation when sterling soared into the stratosphere in the early 1980s.
Mr Clarke will be able to hear just how bad things are in Europe from fellow finance ministers and central bankers when they turn up for the G7 meeting in Paris tomorrow. The dangers of a flagging world economy are firmly on the agenda - and not before time. But without an uncharacteristic rush of blood to the head of the German Bundesbank, it is hard to see early relief to conditions of near recession in Continental Europe. As long as this remains the case, the chances of further rate cuts in Britain over-stimulating the economy seem negligible.
Too much debt will slow Railtrack down
Nothing, barring an early change of government, is going to stop the flotation of Railtrack, scheduled to occur in May. Labour continues to insist that it has some kind of nuclear weapon up its sleeve that will so thoroughly deter investors that the company becomes unsaleable. We have yet to see what that is, however, and for the time being it can only be assumed that Labour's threats are just bluff. Even so, there is an unnerving amount still to be settled about this flotation, given the closeness of the final countdown.
As yesterday's board meeting was made only too aware, the most important issue is the company's level of debt. This may seem like one just for the accountants, but the truth is that if rail privatisation is to fulfil its underlying commercial purpose - the modernisation and improvement of the rail network - Railtrack's capital structure is crucial. The more the debt write-off, the greater the capacity of the Railtrack balance sheet to take on infrastructure projects - Crossrail, Thameslink and the second phase of West Coast line modernisation among them.
On present debts of pounds 1.7bn, Railtrack would be cash-negative for many years; there would be precious little new investment of any sort. Even the Treasury isn't arguing the company should be left with that kind of burden. But with its usual priority of maximising proceeds, the Exchequer does want to keep the write-off as small as possible.
This is short-sighted. Rail privatisation has already cost the Government huge amounts of political goodwill. Having doggedly stuck it out thus far, and with so little money in it for the Treasury anyway, it would be the height of folly to surrender so much of the supposed benefit of privatisation for the sake of a marginal and short- lived improvement in public finances.
On the other hand, it would plainly be wrong to sell Railtrack in totally debt-free form. That would make it look too much like another privatisation giveaway and would encourage senseless diversification to boot. There is nothing wrong with a bit of debt, but the Treasury extreme of pounds 1bn would only prove rail privatisation's many and vociferous opponents to have been right all along.
Unichem strategy convinces the City
Unichem has come a long way since its days as a drugs wholesaling co- operative. In the five years or so that the company has been listed on the stock market, it has built itself into the nation's biggest independent wholesaler of drugs. It now looks set to become owner of the largest chemists chain as well, creating a new household name on the high street - Moss.
The sharp rise in the share price which accompanied news of Unichem's pounds 548m bid for Lloyds Chemists suggests management has convinced the City of the merits of this strategy. Short-term cost savings and the potential for fatter margins mean that for the next two years at least, the deal should enhance earnings per share.
The deal also looks good for Unichem on asset grounds, regardless of any supposed synergies. Roughly speaking, the bid equates to pounds 430,000 per pharmacy, not bad in the antiquated world of prescription chemists where licences have been known to change hands at pounds 500,000 apiece. Lloyds could yet attract a counter-bid from any number of general retailers trying to break into this tightly controlled market.
Trends in the market too may make it imperative for Unichem to increase its size. We have yet to see what impact last year's acquisition of rival wholesaler AAH by Gehe of Germany has on the market place, but it seems probable it will make it more competitive. Meanwhile, the shift of household goods and toiletries sales away from the high street to supermarkets has proved bad for groups like Lloyds, which followed a drug-store approach to retailing. Unichem is rightly emphasising the importance of the pharmacy side of the business and plans to take Lloyds firmly back in that direction.Reuse content