Bank ignores rising pound

NOTHING in the latest minutes from the Bank of England would appear to justify a further rise in the pound. Indeed, they suggest that the Monetary Policy Committee, despite its nine-nil vote to raise rates by a quarter-point to 4% in February, was scurrying around looking for reasons to do so.

But despite the lack of alarm about the future trend of inflation and interest rates, sterling continues its inexorable rise against the dollar. Having breached the $1.90 barrier this week there is a conviction that we will soon see the $2.00 pound.

This is largely an American event with the US authorities showing no inclination to step in to prevent the decline in the greenback. In fact it is just what the Bush administration - anxious about the so-called jobless recovery - wants.

If anything, the latest BoE minutes make the case for not raising British rates again in the near future. The Bank miraculously has discovered extra capacity in the economy. This is essential now that independent forecasters have lifted output predictions for this year to 2.8%, with some going as high as 3.5%.

Just a few months ago, even small moves in the pound seemed important in decision-making. Now the minutes also suggest that the MPC is not convinced that a sterling rise will provide a defence against inflation.

The MPC plays down consumer borrowing and the housing market. But Rachel Lomax, the deputy governor, plainly thinks there is a danger in the borrowing boom.

She argues in a speech in Bristol that current house price levels 'definitely stretch the imagination'. She dismisses the idea that house prices and borrowing are the 'targets that dare not speak their name' and says they are kept under close attention and are important in assessing risks.

If that is the case and house prices continue to defy gravity, then rates may have to rise again irrespective of what is happening to the pound.

Crombie's comfort

ONE HAS to hand it to Standard Life. It may be an old-fashioned mutual, but its timing has proved more shrewd than that of some of the quoted insurers.

These companies were forced to sell stock into a falling stock market last year until the City watchdog, the Financial Services Authority, gave them a waiver.

Standard Life has done things differently. It stubbornly stuck with its high proportion of equities through the market trough, then had its fight with the regulator.

As a result of that it has run down the exposure to shares in its life and pension fund to 50%, dumping £7.5bn of stock on a healthy market.

Chief executive Sandy Crombie says the fire sale is not the result of a policy change - Standard still believes shares are best. But it was required to switch into bonds because of the new realistic accounting required of insurers.

So how much damage has the adverse publicity done to Standard Life? It has made little difference to the mortgage business - in profit for the first time this year - or to its fund management arm.

The pressure has been on the life fund where new business has been added, but not as strongly as has been the case in the past. But this is partly systemic.

The bad publicity for all insurers over endowments which have fallen short, declining bonuses and the fiddling with charge structures by the government has cast a pall over the whole savings sector.

Standard Life, not surprisingly, is putting a bright gloss on its distinctly cloudy prospects. Certainly, the crisis which erupted last month has calmed.

But there are still serious hurdles to be crossed. The group's new realistic accounting still has to be signed off by special consultants Deloittes. Then comes the strategic review and an update on conversion and flotation by the time of the annual meeting in April.

This time around it will be the management rather than rebel policyholders leading the drive to the stock market. And not before time.

Royal flush

HAS THE Royal Mail turned the corner after years of mounting losses?

All the indications are that now the wildcat strikes are behind it, the small profit of £5m in the first sixth months of 2003 could turn into a whopping £200m when the full-year results are reported.

Under the direction of chairman Allan Leighton and chief executive Adam Crozier, the post seems to be firing on all cylinders again and with costs down and charging now more realistic, 2005 could yield a profit of £500m.

No one will be happier than the postmen who could yet see Asdastyle payouts from the 'share' bonuses granted by management.