MPC hawks should listen to Nickell

Maybe it is time to consider a rate cut

The papers were full of the curious (and untrue) story of Norman Lamont and his shopping expedition to a Thresher's off licence in Paddington the last time unemployment rose more strongly than it did last month. That's how long ago it was: December 1992, when Britain had just left the ERM and the economy was about to emerge from painful recession.

Let's get things in perspective. The number of people out of work and claiming benefit is a third of its 1992 level, and at just over 900,000 remains at levels that poor old Norman could only dream about. Even so, the claimant count has risen in 12 of the past 13 months and the 14,600 increase in February was five times as big as the City had been expecting.

What's happened is that firms that had been hoarding labour in the anticipation of stronger demand have started to wield the axe in the face of rising energy costs and weak productivity. The fact that most of the job losses were among women suggests retailers, in particular, have been feeling the heat.

With yesterday's data showing that growth in average earnings remains muted, it is time the hawks on the Bank of England's monetary policy committee started to pay a little heed to what Steve Nickell has been saying. Nickell, the one dissenting voice on the MPC, has been arguing for months that interest rates should be cut because of the spare capacity in the economy.

Rising unemployment is a clear sign that Nickell is right and that the majority on the MPC is in danger - perhaps for the first time since it was granted independence - of falling behind the curve.

Bin BP machismo

BP was keeping a dignified public silence last night rather than respond to the suggestion from Cazenove that it should consider breaking itself up.

Privately - and formally - there was an indignant splutter that any such move would be considered given the record profits being churned out by Britain's largest stock-listed company.

The planned break-up of the admittedly much smaller and less successful Amec, a supplier of engineering work to BP, is being done in acceptance that the investment community likes focus, and more focus best of all. Fred Lucas, the respected Cazenove analyst who put the note together, gives a number of arguments for breaking up BP beyond the current sale of its chemical arm Innovene. He points out that there have been plenty of stock market floats by oil companies in recent years, but when was the last one involving a private integrated group with both upstream exploration and downstream refining?

Mr Lucas dismisses the argument that operating in both sectors has ironed out the cyclicality of earnings at BP, pointing out that the combined entity has not historically generated smooth earnings.

Lord Browne told this paper recently that ordinary people failed to understand massive businesses like his. Equally, he insisted BP is not interested in size for the sake of it.

With record profits drawing increased fire and accusations of oligopoly being thrown at the oil majors could it be time to finally bin machismo and accept that small is beautiful - even for Big Oil?

Footsie hysteria

Almost three years ago the FTSE-100 tanked. After the dotcom boom the market hit reverse and the leading index closed, on March 12 2003, at just 3287.

Life insurers were being forced to apply for waivers from solvency rules as the value of their equity investments declined by the day and the outlook, with a war in Iraq looming, was dismal.

Last night the FTSE-100 closed at 5965 and the 6000 mark is in sight - for the first time since March 2001.

In 2005 the market gained 17%. This year it is moving still faster. In just three months the FTSE-100 has gained 6%. This is not just a little local excitement: markets worldwide are buoyant.

If the current momentum continues the London market will climb 26% by the end of this year to a head-spinning 7080 - way ahead of the previous peak of 6950, set on December 30, 1999.

There are, of course, big potential risks looming, from Iran and Iraq to bird flu. The Fed might continue to jack up interest rates or the Chinese bubble may pop. But the market is in excitable mood at the moment (is this another outbreak of what Alan Greenspan once dubbed "irrational exuberance"?), mainly on the anticipation of another big bid emerging. Hanson rose nearly 20% on bid rumours yesterday, but closed almost flat when nothing happened.

If any of the current favoured speculation turns to fact - a foreign bidder emerging for Lloyds TSB, Novartis taking a tilt at AstraZeneca or a team of private equity players club together to take out BT or Unilever, hysteria may well set in.