Bank need have no fear of a cut

When the Bank of England started to raise interest rates from their 50-year low of 3.5% little more than 18 months ago, it could hardly have expected to get so much bang for the buck. Over the nine months between November 2003 and August last year, the monetary policy committee pushed up interest rates in five quarter-point jumps - a modest tightening of monetary policy by historical standards.

Yet the impact has been striking. House price inflation - running at 20%-plus not so long ago - will be back to zero by the end of the summer, and yesterday's CBI survey of consumer spending was dire.

Sure, there were excuses. The weather this year has been lousy, and last year saw a splurge of demand as football fans settled down in their replica shirts brandishing cans of lager at David Beckham on their new plasma TV screens.

But the CBI's three-month moving average of sales volumes, which strips out the distortions caused by one-off events, paints a similar picture.

This was the gloomiest survey since the CBI started to collect data back in 1983.

It's not that hard to see why. A large slug of the boom in spending was the result of a willingness by consumers to take on more debt. That seemed fine while the value of their main asset - their house - was going up. Now that house prices are coming down, consumers are becoming more cautious, and certainly more selective, in their spending.

Having crammed their homes full of spanking new TVs, dishwashers and carpets, demand for consumer durables has fallen sharply. The fact that spending on consumer services has held up somewhat better suggests that part of the downturn in retail activity is down to choice rather than necessity. Consumers have seen spending power hit by higher taxes and dearer energy, but they are not suffering in the way that they were in the recession of the early 1990s. At least, not yet.

The Bank's fear is that, having tamed the consumer, cutting interest rates now would start the whole process up again. In the end, though, that will probably not matter, for two reasons.

First, there is a real risk that it will damage confidence further by keeping policy too tight for too long. Second, prices in the shops are about to come down hard as retailers flog unwanted stock.

And given that the Bank's task is to control inflation, it will be left with no choice but to act.

Problem with success

The 12-week TNS Superpanel figures - the yardstick used by the food retail industry to measure success - shows Terry Leahy's Tesco retail machine has breached the 30% market share barrier for the first time.

And there is no sign of any slowdown, of any sort. Even more up-to-date TNS figures are understood to show Tesco bounding yet higher, to 30.7%.

It is well in excess of the 25% level that is the OFT's measure of what can constitute a monopoly. But, despite mounting pressure for a full-blown competition inquiry from a diverse range of special interest groups, there is no suggestion one might be ordered.

Tesco has achieved this quite astonishing level of market dominance as a result of its success. But you have to ask: just how long can such runaway growth go on? What level of dominance is truly unhealthy and unacceptable? At what level must companies become a victim of their own success? Is 40% of the market too much?

And what exactly could competition watchdogs do to slow Tesco down? Force a break-up as US regulators did with phone giant ATT, which was dismantled into the so-called Baby Bells? It is a real problem and keeping public opinion onside is absolutely key. No wonder the group has hired ex-Sun editor David Yelland as an adviser.

Anxious legion

The army of lawyers, accountants and investment bankers who earn their living advising companies on mergers and acquisitions will be glued to their in-boxes today. Wait for it: a new draft accounting standard is due to drop.

To this well-heeled legion, this is an important milestone. This will be the first time the accounting regulator for the US - the financial accounting stan dards board - and the umbrella regulator for most other developed states - the international accounting standards board - have produced a combined proposal for merger accounting - or "business combinations" in accountancy speak.

Those who are minded to watch will therefore be doing so very closely.

Indeed, these proposals could lead to significant changes in the way that much merger and acquisition activity is tackled. Esoteric-sounding changes - such as having to account for 100% of the goodwill associated with a takeover, even if the buyer is taking only partial control - will send number-crunchers across the world into an extended spin.

Here's another googly from the rule crafters: costs associated with a takeover or merger will have to be treated as an expense (falling straight to the bottom line) rather than being capitalised as an investment, as tends to happen now. We await the squeals.