King cools loan rate fears

AS FAR as the future trend of interest rates is concerned, the Bank of England's latest Inflation Report is not too alarming. Sure, the economy is going to grow at above trend rates this year, possibly close to 3.5%. But providing that consumption and the housing market slow, future base rate rises should be limited and modest.

This is even more likely if the pound continues its dizzying rise against the dollar. The latest surge to above $1.88 followed comments from Alan Greenspan, who suggests that American rates can remain on hold at 1% for the time being.

Mervyn King, the BoE governor, acknowledges that interest rate judgments at present are 'technical' and finely balanced, largely because there is no looming inflation threat.

The Bank has managed to compile a two-year forecast which shows the consumer prices index (CPI) - which is now the key measure - hitting the 2% target more or less on the nose. But, given that the CPI has exceeded 2% in only one month of the independent Bank's existence, it all looks a little trite.

Aside from strong economic growth, there appears to be no obvious reason why the CPI should surge. The Bank mentions utility charges which are on the way up. But manufacturing pricing power remains weak and average earnings are not posing a huge problem.

If there is a difficulty, it could come on the financial markets. Government borrowing is bounding away and, although King seems confident that it will be brought in on target, it seems unlikely that the tax yield can rise very much before the next General Election.

In addition, the markets need to supply cash to consumers and keep the wheels of industry well oiled. These factors could push up money costs in the months ahead.

The Bank's view is, as it has been for some months, that the housing market bubble will evaporate and reduce to zero in the next two years. But, despite a slowdown in the final months of 2003, it has started the New Year vigorously. So far, interest rate medicine has failed to deliver.

King is hopeful that the economy will rebalance, that improved exports and manufacturing will fuel growth and that the household sector will trend down.

But there must be a concern that the opposite could happen. Interest rate differentials with the rest of the world will push up sterling - making UK goods less competitive - and we will have more of the same from the household sector.

Inflation forecasting is not an exact science.

Mickey Mouse bid

IF ANYONE is getting too excited about the prospects of a media megamerger involving Comcast and Disney, I suggest they remember the hype about AOL-Time Warner. Then it was the combination of the new economy with brilliant content which was to transform the world of entertainment.

Now it is claimed that Comcast, with its 21m cable subscribers in the US, would be the ideal party to deliver Disney programming. Certainly, there is a case for shaking up Disney's self-aggrandising management, led by Michael Eisner, which thinks it can do no wrong.

Earlier this week, the company ruled that Abigail Disney, daughter of dissident director Roy, would be barred from a presentation to investors and analysts. This is hardly the openness for which better governed companies strive.

But seeking changes at the top and different strategic priorities is very different from allowing a hostile bidder to win control. Comcast may look all powerful, but it is bidding out of weakness. It has trouble creating its own content and fears the challenge from Rupert Murdoch and DirectTV.

The best plan for a content company is to remain independent. Then it has the chance to auction its output to a number of media channels. Creativity can easily be stifled in a larger enterprise.

Comcast has without doubt opened an important debate about the real value of Disney and its governance. But Mickey should hold firm.

Webster wisdon

SOMEONE should perhaps send a copy of David Webster's remarks at the egm of Safeway to the government and the competition authorities.

Webster told a convincing story of the difficulty of running and maintaining confidence in a business during 11 months of regulatory scrutiny.

He also expressed frustration at a process in which Safeway shareholders were denied an auction and as a consequence are having to sell out at less than an optimal price, or hang on for Morrisons and accept a lower dividend.

Consumer interests must always be taken care of. But this does not mean suspending the rights of investors.