Brown defies false prophets

WHEN Gordon Brown gets on his hind legs to deliver his spring budget on 17 March he will once again have something to crow about.

Despite severe scepticism in the City, the Chancellor managed to bring growth in on target last year. What is even better from his point of view was that the economy was accelerating in the final quarter with growth running at

2.8% year on year.

This means his upbeat forecast for 2004, on which the public finances hang, also looks a little more credible. No doubt the Treasury would claim such pinpoint forecasting is a tribute to its forecasting model.

But those in the know suggest that it is Gus O'Donnell, the Permanent Secretary, who is the man with the golden slide rule.

The main contributors to growth in the final months of 2003 were construction and financial services. Building, partly fuelled by government investment, boomed last year, climbing by 7.1%. Financial services also have picked up.

Detailed data shows an important contribution to the economy is being made by business recovery. Corporate profits surged last year by 9.7% when pay levels have been stagnant. This means there has been a shift in the way income is distributed in the economy from households to business.

This should be good for business investment, which is rising strongly, and should also be good for investors who can expect to see better returns now that retrenchment, following the three-year stock market meltdown, is being followed by greater earnings power.

Where does all this leave the interest rate debate? The inflation risk looks minimal but there is a danger of supply bottlenecks. Many experts are predicting further rate rises this year as the Monetary Policy Committee seeks to dampen consumption - without provoking a crisis among consumer borrowers.

Banking choice

AT HBOS a more cautious view of the consumer already is being taken. Halifax, the market leader in mortgages, is trimming back its exposure to new home loans. This came down from 31% to 25% over the last financial year and it is aiming for around 22% in 2004.

James Crosby, chief executive, knows HBOS has the capacity and the distribution but recognises the risks. He points out, however, that his mortgage loans are on average 61% of the property's value and a modest 2.5 times income - when there are alarming reports of much higher multiples.

Strangely, the stock market took fright at HBOS's caution-and initially marked the shares down sharply. But there is much encouraging news at HBOS, which is seeking to break the mould among Britain's high street banks.

Costs of running the bank have come down nicely from

45.2% of income to 41% in 2003 and could drop to below 40% in 2004, making HBOS the most cost-efficient of the bigger banks.

Its skill has been to offer its customers, many of whom are shareholders, a better deal. Interest on current accounts, the 9.9% credit card and 6% interest on some deposits are big draws.

In the investment arena the focus on distributing simple savings products means that it is building market share and now has as much as Aviva - with around 11%.

Banks generally have tipped the balance towards shareholders and away from customers. That is certainly the impression one has of Royal Bank of Scotland, where navigating the call centres is a nightmare while Fred Goodwin, the chief executive, enjoys the good life.

HBOS is producing a better balance between serving the consumer and shareholder.

Sure, its systems too may have glitches and it may have been too eager to raise interest rates in the wake of the Bank's changes. But in the longer run, HBOS looks as if it might develop into the bank of choice for younger customers from the top income groups.

The right call

THERE has been much handwringing over the shift of some 50,000 call centre jobs to India. This has proved particularly frustrating in that many of the tasks, notably directory inquiries which require local knowledge, could be done better in Britain.

Nevertheless, Trade Secretary Patricia Hewitt was right to point out at the Mansion House that in a globalised world, Britain needs to move up the economic ladder and compete on skills not wages. She also notes that one more job in India also means 'one less Indian family in poverty, one more customer for our goods'.

Brave words from a minister making an effort with business.