Steady course needed from MPC in statistical fog

Hawks in the City have been betting for some time that the Bank of England will be the first major central bank to start raising rates.

Their case received some backing yesterday when the minutes of the Bank's September monetary policy committee meeting revealed that the MPC appears split between those who think that July's cut to 3.5% will have to be taken back soon and those who are content to leave rates on hold and see how the economy shapes up in the second half.

A closer reading of the minutes suggests that City expectations of a half-point rise by year-end are overdone. The committee is not convinced that the world recovery is on a sound footing.

Moreover, the MPC is about to enter a period when statistical changes will make reading UK data more than usually confusing. The office for national statistics is about to release new estimates of growth over the last year and a half, reflecting the impact of customs fraud on Britain's trade deficit and a new method of updating the expenditure estimate of GDP. The latter should reveal that estimates of household spending have been overblown in the past - meaning that growth has been more balanced than previously thought.

While some members may be ready to vote for higher rates, it seems likely that with a statistical fog about to descend the majority of the committee would rather keep a steady course.

Barrett's gamble


The widely expected boardroom reshuffle at Barclays may not be as smooth as first expected. For the past year, the bank has been trying to convince its shareholders that its has a clear succession process in place after the fiascos of the past.

Matt Barrett, the chief executive parachuted in four years ago when the first-choice candidate failed to turn up, was to be elevated to the chairman's seat and his successor picked internally.

Yet the chairman-elect is not playing ball. He is letting it be known that he is growing tired of life in corporate Britain, what with the media's ranting over boardroom pay and the government's obsession with regulation. Even so, speculation about his successor as chief executive abounds.

Bob Diamond, who runs the investment banking arm Barclays Capital, is said by some to be the front runner. He is reportedly ready to take a substantial pay cut from his rumoured £6m a year pay packet to take the hot seat.

The most talented candidate might be David Roberts, the head of the retail bank. But he is still very young.

The safest and, in our view, most sensible choice, is John Varley, the finance director, although he carries the clear disadvantage of being married into one of the founding families.

The risk for the bank in picking Varley is that Diamond throws a fit and heads for the door. His raw talents would be picked up quickly back in the US.

The risk for Barrett is that he ends up leaving under something of cloud.

US aggro-culture


The American presidential election is over a year away but the vote in November 2004 is already casting a shadow over the US and the world economy.

The liberal press in the US, examining the carcass of the world trade talks in Cancun, has concluded that they never had much of a chance because of the political priorities in the White House.

Developing nations walked away from the talks faced with American intransigence over agricultural subsidies. The US passed a bill in 2002, which raised subsidies by $40bn and, the New York Times noted, Bush was unlikely to disenfranchise the agricultural states that heavily backed him in the 2000 election.

According to the Centre for Responsive Politics, the agribusiness made $53m in donations last year, chiefly to the Republicans. Perhaps that might explain the urgency with which the US is attempting to push genetically modified crops on Europe and other parts of the world.

But the trade picture is not just about farming. While the stats may suggest fragile economic recovery in the US, the manufacturing sector, still a source of great pride and political sway in America, continues to lose jobs.

The red menace lurking in the modern day American psyche is no longer communism but the fear that China and other developing world countries are stealing American jobs. Recent talks have focused on floating the Chinese currency to stem the flow of jobs.

Political expediencies are evident elsewhere. The recent request by Mr Bush for $87bn to continue funding the rebuilding and policing of Iraq will swell the federal deficit in the coming year to a record-breaking $540bn. The slack economy has obviously hit the federal tax take, while medical and social security costs are soaring. There is pressure to spend on homeland security. But the Bush administration continues to press ahead with vote-winning tax cuts that add an estimated $3 trillion in debt over the next 10 years.

The administration argues that the growth from the stimulus provided by tax cuts will be enough to pay off the deficit . That seems unlikely.

While Bush's popularity continues to wane, the chances of a sudden outbreak of fiscal and economic responsibility will remain very low indeed.