Outlook: OECD is wrong about rates, which need further trimming

Extended Dixons; End of the road Â

It is still too early to call the next interest rate decision, which doesn't take place until 8 May (the week after next). A lot could change in the meantime, but on the basis of yesterday's growth figures, showing a barely perceptible increase in GDP of just 0.2 per cent in the first quarter, a further cut would very definitely seem to be in order.

The case against doing so was outlined by the Organisation for Economic Cooperation and Development this week. Growth may have slowed to a snail's pace, but the outlook is still better than almost anywhere else except the US. According to the OECD, inflation is meanwhile expected to remain stubbornly above 3 per cent for much of the year, building in a degree of inflationary expectation which may become self fulfilling.

The OECD also continues to worry about the housing market, which it thinks could be further inflated by another cut in interest rates, leading to a big demand shock down the line when finally house prices stop growing or fall. On this front, the Paris-based OECD may be a bit behind the times. House prices may still be rising nationally, but in London they are down 10 per cent from the peak.

Countrywide Assured, Britain's biggest chain of estate agents, says that the end of the war has had "no impact whatsoever" in helping to revive the housing market following a fall of a third in house sales in January and February, so it may be that the housing bubble is beginning to correct even without interest rate action.

The big question is whether the same thing is happening to consumption – whether the fall off in consumer spending growth that took place in the first quarter was a war related phenomenon or something more permanent. Anecdotal evidence of shopping patterns since the end of the war might suggest more of the latter than the former, and if that's the case, then the Monetary Policy Committee needs to be giving serious consideration to a further easing, whatever the OECD says.

One danger is that more rate cuts will lead to a further slide in the value of the pound, but in the end this shouldn't matter too much. More depreciation could prove inflationary, true enough, but a competitive exchange rate once more is just what large portions of British industry want, and after such a long period of growth in domestic demand, an export led recovery is just what the economy needs as well.

Rates ought to be cut again, unless compelling reasons for not doing so emerge between now and 8 May. The OECD is right to raise renewed concern about inflation, but the biggest threat to economic wellbeing remains that of recession, not inflation. Rates can quickly be reversed again if the prognosis turns out to have been too gloomy. Over the last two quarters, British growth has been no better than that of the eurozone, which is a powerful argument for bringing our short term interest rate into closer alignment with that of the European Central Bank too.

Extended Dixons

Anyone would have thought that Dixons, Britain's biggest electrical retailer, had already won the battle over extended warranties to judge by yesterday's share price reaction.

The Competition Commission had organised a public hearing as part of its investigation of the extended warranty market. Analysts rushed to tell their trading desks that the debate was now heading Dixons' way. Maybe they are right, but it was hard to reconcile this view with what actually happened. Our man in the audience came away convinced that at most nothing could be read into the hearing at all.

True, the Dixons chief executive, John Clare, mounted a spirited and even-handed defence of extended warranties, saying that much of the debate had become "stuck in a timewarp". His point that these policies have become much more than just an extension of the manufacturer's guarantee. Today they also cover accidental damage, theft and damage caused by not properly following the instructions.

On the other hand, the Consumers' Association was unmoving in its opposition. As for the Competition Commission's members they gave nothing away at all. Apart from the chairman, Sir Derek Morris, they all sat in stony silence throughout. The Consumer's Association insists that warranties are unnecessary, too expensive and are often sold in an unduly aggressive manner. As for the cost, Dixons' defence seemed to undermine its case rather than support it. A £1500 widescreen television can be protected under its Coverplan policy for five years "for just £309", it said. That's a stonking great 20 per cent of the price. Thanks, but no thanks.

Extended warranties are a big earner for Dixons, accounting for 40 per cent of profits according to some City estimates. Their removal would be a big blow to Dixons. But it has always seemed unlikely the comission would attempt to ban their sale outright, a remedy of questionable legality given the degree of interference in the market it would require.

Much more likely would be a code of conduct, together with stricter guidelines on the provision of information about prices and repair costs. The bigger threat to Dixon's profits comes in any case not from regulators but from rivals. Dixons faces growing competition from Argos and the major supermarkets, all of which offer rock bottom prices and don't try and flog you a warranty at the same time. John Lewis with its"never knowingly undersold" policy and built in warrantees for no extra cost offers a further alternative to the Dixons stranglehold.

The once thick margins on extended warranties are already under threat after the closure of an offshore tax loophole last year. The "money for old rope" days of the extended warranty seem to be over whatever the outcome of the Competition Commission investigation.

End of the road

I was saddened to learn of the death last week after a period of ill health of the serial entrepreneur, Rolf Schild, who I once spent an extraordinary day with back in the early 1990s. Mr Schild, chairman until his death of the medical equipment company, Huntleigh Technology, was a great friend of Tony Parnes, the stock broker at the heart of the Guinness affair. I had got to know Mr Parnes relatively well while covering his trial and subsequently made arrangements through his then wife, Denise, to visit him at Ford Open jail.

Mr Schild was to be our driver. It soon became apparent why Denise insisted on sitting in the back. He was quite the most dangerous driver I've ever had the misfortune to share a car with, swerving perilously this way and that, apparently oblivious to all traffic around him. The main object of his attention seemed to be his wife's shopping expedition, which he constantly checked up on through his mobile phone. I was the first journalist, he informed me in a thick, Eastern European accent, that he had spoken to in many a long year, and did I want to know why? He was going to tell me anyway. It was all to do with the kidnapping by bandits of his wife and daughter from their holiday retreat in Sardinia.

In the aftermath of this trauma, Mr Schild was accused in the British press of concocting the whole thing in order to avoid exchange controls on the £1m supposedly paid as a ransom. He sued for libel and lost, which destroyed his faith both in the press and the British judiciary. Perhaps that was the other reason I was made to travel in the front.

For someone who had lived so long in Britain, Mr Schild was curiously naive about its ways and foibles. What would become of his friend Mr Parnes after he was released, Mr Schild asked? Would he ever be able to work again, or hold his head up high? Not in the City, I said, but once he had done his time, that would be the end of the matter and he could make of his life what he wished. Perhaps the British do have some redeeming characteristics, he laughed, narrowly missing the path of an oncoming lorry.

jeremy.warner@independent.co.uk