Bank of England keeps its nerve

KREMLINOLOGISTS specialising in the politics of the Bank of England are in overdrive. Its interest rate-setting committee has not been briefed on the contents of the Budget, so this month it is working in the dark to some extent.

Tongues are wagging too over the impending departure of veteran Bank insider Ian Plenderleith from the committee, and the effect it might have on voting.

Be that as it may, the decision to keep rates on hold at 4% is the right one. Governor Sir Edward George is understandably worried about the runaway house prices and consumer credit that have been stoked by last year's seven successive rate cuts.

As expected, the Nationwide building society reported annual house price inflation of 13.8%, a day after the Halifax recorded a 16% rise in home values.

The struggling manufacturing sector is beginning to pick up, according to the Chartered Institute of Purchasing and Supply, with a rise in activity for the third month in a row.

The CIPS also reports service sector activity at its highest level for a year. But an increase in borrowing costs at this stage would have suffocated the still tentative recovery. The European Central Bank also opted to leave rates unchanged.

Rising oil prices are a cause for concern. Since last week, crude has risen almost $2 to $27.50 a barrel. That has prompted some concerns that rates may have to go up to ward off inflation, as in 2000 when the oil price peaked at $36.

Higher oil prices will also, however, add to business costs, putting the nascent manufacturing revival under pressure. At the moment the Bank still has some headroom on inflation, in terms of keeping within striking distance of its 2.5% benchmark. The retail prices index fell to 2.2% in February from 2.6% a month earlier.

Industry and homebuyers are off the hook for the moment. But as the Institute of Directors warns, the Bank is expected to start clawing back some of last year's cuts in the summer.

They think it's all over

THE Football League is in crisis as a result of the collapse of ITV Digital - but at least England's arch sporting rivals, the Germans, are in the same boat.

The league's woes are mirrored at the German Bundesliga, which is owed £123m by KirchMedia, the rights and broadcasting arm of heavily-indebted Kirch Group.

The German government, unlike the British, says it may bail out the clubs, though that could get it into trouble with the European Union, which might view this as unfair state aid.

Kirch Group, labouring under debts of at least £4bn, is on the brink of going under barring a last-minute miracle. The company, run by 75-year-old Bavarian businessman Leo Kirch, has been struggling to stay afloat for weeks. Commerzbank and DZ Bank, two of the biggest lenders, pulled out of talks this week after failing to agree on £90m of bridging loans to keep the group afloat for another couple of months.

Kirch is a textbook case of the excesses of technology mania. It ran up enormous loans for exclusive sporting events. It was then stymied by low subscriber growth and huge interest costs. Like ITV Digital, it also suffered bad management, at one point sparking a consumer rebellion with the burning of set-top boxes.

If Kirch does go under, the German economy will suffer its fourth major bankruptcy in a month. It will also put the German government in a tight spot. Media regulators have already indicated that they are concerned at the position of Italian prime minister Silvio Berlusconi, who along with Rupert Murdoch and Saudi investor Prince Alwaleed, is a shareholder in Kirch and will be key to its future. The Germans are uneasy at the possibility of Berlusconi combining media ownership with his political role.

With the consolidation of pay TV into the hands of a few powerful owners well under way, such concerns can only increase in future.

Do as I say...

IT IS interesting that the Prudential and Royal & SunAlliance have seen fit to award their chief executives, Jonathan Bloomer and Bob Mendelsohn, pay of more than 1m apiece.

Neither company has covered itself in glory in the past year - the Pru failed ignominiously to pull off a bid in America, while Royal & Sun ran up some rather nasty losses from asbestosis claims. The two insurers are, of course, major shareholders in other companies. How will they be able to object with a straight face to fat cat pay elsewhere?