Hot summer for borrowers

THE Monetary Policy Committee is becoming predictable. Each of its moves to slow the credit boom has now come on the eve of publication of the Inflation Report, its quarterly assessment of what is going on in the economy.

On this basis we can now expect rates to rise again, this time from 4.25% to 4.5% in August. Indeed, an instant poll of economists by Reuters following the Bank's move showed a substantial majority are forecasting another rise that month.

The gilts and equity markets were largely influenced by the hawkish tone of the Monetary Policy Committee's comments. The MPC noted with some alarm the rise in commodity prices and earnings as the global economy takes off. The Footsie tumbled by 53 points to 4516 and gilt yields rose, reflecting future inflation and rate worries.

Even though the key measure of inflation, the consumer prices index, is benign, the MPC sees overheating in almost every part of the economy from housing to earnings. It also recognises that though competition among retailers is keeping High Street prices down, this cannot last for ever with raw material costs - from oil to soya - increasing.

The willingness of Mervyn King and the Bank of England to act contrasts sharply with the Federal Reserve in the United States and the European Central Bank, both of which are holding rates.

It is now widely expected that Fed chairman Alan Greenspan will lift rates from the present 1% in June, thereby presenting the bad news well before the presidential election moves into its closing stages in September.

As business groups were quick to point out, higher rates in the UK are not comfortable for manufacturing. The growing gap between UK interest rates and yields and those in the US and euroland might well keep sterling firm on the foreign exchanges, and this in turn will hurt exporters.

The British Chambers of Commerce fear that investment, which has been picking up this year, could be affected.

Savers, who outnumber borrowers by seven to one, will benefit from higher interest rates, as long as they are fully passed on. Recently there has been a lamentable tendency among the banks to pile on the misery for home buyers and to limit the passthrough to savers - thus improving their own profit margins.

The assumed returns on pension funds should also improve, helping to shrink deficits like that reported at MFI. It is an ill wind that blows no man good.

Symbian sizzles

THE latest numbers from Symbian, maker of smart phone software, raise fresh questions as to why David Potter and Psion were so keen to off-load the company's stake.

In the first quarter of this year, the British software concern saw shipments of mobiles incorporating its technology more than double to 2.4m units, against 1.2m in the first quarter of 2003.

The consumer is starting to recognise that the added functions which come with Symbian, from clear photo images to e-mail, are worth having. Indeed, there are increasing signs that Symbian software could yet become the dominant provider of operating systems to the big mobile makers.

Earlier this year, Potter forced through the sale of Psion's 31% stake in Symbian to Nokia for £136m in the face of vociferous opposition from 13% shareholder Phoenix Asset Management.

But that is not the end of the story. The deal is being held up by the German competition authorities, who have expressed concern about the potential for Nokia's domination of cellular phones with the Symbian system.

They are not alone in their concerns. Sony-Ericsson, another Symbian investor, has seen increasing success with its new mobile units which incorporate Ericsson's knowledge of mobile phones and Sony's famed success in developing easy to use, reliable electronics.

So there is an intriguing possibility that other investors may yet choose to exercise their pre-emption rights and tell Psion that they are not prepared to go along with Nokia snapping up what appears an ever more valuable property.

Potter's deal looks more flawed by the day.

Justin's challenge

NO ONE can accuse Justin King, the new Sainsbury boss, of not trying. Prices are being slashed and the grocery group has signed up some eye-catching designers, including Terence Conran, to burnish its non-food offerings.

But the grocer (in which I am a shareholder) has a mountain to climb. Latest market research figures show a loss of one percentage point in the quarter to April. Tesco is still soaring away. Ouch!