Odds against a British rate rise

In June Britain clocked up a record import bill, according to yesterday's official figures. Good news or bad? Using the Macawber approach to economics the news is undoubtedly bad - deficits make for unhappiness.

In balance of payments terms, Britain can look for a measure of relief as economic demand in the euro-zone picks up, which should give British exporters a timely boost.

It is also possible to put a positive spin on the deficit. More imports equate to rising domestic demand, which confirms that the economy is speeding up.

The problem for the Bank of England's monetary policy committee is in gauging the extent to which demand is taking off.

Monday's data, from the office of national statistics, showed that inventories fell more sharply in the second quarter than in any comparable period since 1991.

The implication of the stocks clearout is that the economy could be on track to grow rapidly in the second half of the year.

So does the combination of the two sets of data provide the crucial and necessary evidence for those on the Bank's monetary policy committee who were already sufficiently worried about the inflationary outlook to be considering a rise in interest rates?

Not yet. Stripping out erratics from the trade figures the trend is on the rise, as the inventory statistics are suggest. But they do not represent conclusive proof that growth will take off so rapidly that the Bank of England will be unable to meet the inflation target.

At the risk of being disingenuous - and wrong - it is a decent bet that we will not see another rate rise in the UK until the next millennium.

UBS excess

Nobody would have been able to accuse UBS of an excess of modesty yesterday. The integration of the bank's component parts had "set a new international benchmark in efficiency and speed", it trumpeted.

There will be no shortage of pretenders to the crown UBS has bestowed on itself. Whatever combination finally emerges from the present French banking imbroglio will be keen to show the whole thing has not been the farce it has sometimes seemed.

Japan's own version of the banking triple-play - the planned merger of Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan - could have a tilt at the title, even if it puts slightly less emphasis on speed.

Germany's Deutsche and Dresdner banks should not be forgotten, either. Putting their retail networks together would provide challenges to rival those which UBS maintains that it has so successfully overcome.

But what about UBS itself? First half net profit was up 13%, the cost-to-income ratio is moving in the right direction and UBS is clearly happy about the way the merger has gone.

But profits from private banking were down. The results from Phillips and Drew were, on UBS's own admission, "significantly down", while the private equity investment arm, UBS Capital, is said to be so lumpy as to make short-term comparisons meaningless.

On the other hand, the private and corporate client business does appear to be doing well. Investment banking - in the shape of Warburg Dillon Reed Investment - turned in very good results, even in comparison with a strong first half in 1998. At a price, that is. Bonus payments added more to personnel expenses than the merger saved.

Whatever UBS has done for banking benchmarks, it still has one or two things to be modest about.

Fed's neat trick

For America's financial markets the outcome of the Federal Reserve's open market committee was a done deal 24 hours ahead of its meeting.

Wall Street ventured into record territory and the dollar rallied with the euro, dipping below $1.05 - and all on the expectation that the Federal Reserve would deliver a 25 basis-point hike but make the required reassuring noises that having raised rates from 5% to 5.25% it would be unlikely to move them again this year.

Not that the Fed would ever be so specific about interest rate policy. But Wall Street has its own interpretation of the difference between a neutral bias and one which leans towards tightening.

In the event the markets got their 25 basis-point rise in the Fed funds rate. More important, while acknowledging that the policy stance dictated by the Asian crisis was no longer appropriate, the Fed made it clear that its stance, after two rate rises in the other direction, was the much looked-for neutral.

That was good for an immediate 60 points off the Dow Jones, a response dictated presumably by the "buy the mystery, sell the history" school of financial market analysis.

But within minutes the market had indicated its approval by swinging back 110 points to put the Dow back in positive territory.

Some would say that it would be a neat trick for any central banker to be able to raise rates without spooking the markets. But the US is facing what looks like an asset price bubble. Sooner or later it has to be deflated: telling investors what they want to hear is not the way to do it.

French farce

For those who thought that France's marathon banking takeover battle would end this week, allowing executives to take a well earned holiday, there is a sobering thought.

Although the banking regulator has promised a ruling before the end of this week there are whispers that whoever comes out on the wrong end of the decision might appeal. Still, that would only take another month or so. Given the first moves took place in February, that would constitute almost unseemly haste.