King talks down the pound

CENTRAL bankers normally seek to avoid public discussion of the exchange rate. After all, if you start a run on volatile foreign exchanges, you never quite know where it will end.

So it was a surprise to currency dealers to hear Mervyn King, the governor of the Bank of England, telling a Commons committee that the surge in the pound this year was working against the Bank's quest for a more balanced economy with manufacturing taking up the slack as consumption slows.

King observed that a 'more balanced expansion' will not have been helped by the 3% rise in sterling since last month's Inflation Report. He also mentioned that the effective exchange rate is 6% higher than when the Monetary Policy Committee last met and 'is continuing to make life difficult for many exporters'.

The governor's remarks were taken to heart on the markets where the pound slipped to $1.81 and lost 1% against the euro. The dilemma faced by the Bank early next month is exemplified by the refusal of household spending to die down.

King noted that surveys of consumption were buoyant in the first three months of the year despite two quarter-point interest rate rises to 4% since November. The governor said that if interest rates were to rise further, he did not believe that a large number of households would be badly hurt.

The unmistakable message of King's testimony and that of deputy governor Sir Andrew Large earlier in the week is that rates will have to rise further this year. The more quickly the Bank acts to adapt to the new circumstances the better.

With the British Bankers' Association predicting a pick-up in mortgage lending this spring, consumer borrowing still rising and the CBI still reporting strong manufacturing trends, something is going to have to give. The odds are shifting dramatically towards an April rather than May rate rise, despite concern that sterling is too strong.

By speaking out on the exchange rate, King may have made it easier to follow through with higher interest rates without forcing the value of the pound too high.

Life change

STANDARD Life, the last of the big mutual insurers, has never behaved like a company in a hurry. But with the group's annual meeting approaching on April 6 and the Financial Services Authority sitting on its shoulder, some faster decision making is necessary.

All the indications now are that a fundamental decision will be taken by chief executive Sandy Crombie and his team to abandon mutuality and go for a stock market float.

Before that can happen some rapid reshaping of the group will be necessary. Mutuals, largely immune from market conditions, rarely behave like plcs. This is not to say everything in the quoted world is wonderful. But substantial adjustments will be required by Standard before it can even contemplate a demutualisation and possibly some fundraising.

Financial advisers are going through the company's operations at present like a dose of salts. Some of the international operations may not be paying their way. Canada has been given a clean bill of health, but Europe looks a bit rocky. Standard Bank is performing well enough and for the moment has enough capital of its own.

What is clear is that the group is almost certainly overstaffed and there will be job losses to come beyond those that have already taken place in the direct sales force. Business, which picked up strongly in the wake of Equitable Life's near- collapse, is growing much more slowly and does not justify present staff levels.

It is entirely possible that Standard, valued by some well in excess of £3bn, may never get to the starting gate. Or if it does, like Norwich Union, it may be gobbled up quickly or launch a merger itself. Change is on the way and with it the prospect of windfalls - but on nowhere near the scale that policyholders may once have hoped for.

Comeback campaign

THE air may have come out of the stock market balloon this month (despite yesterday's rally), but the deluge of new issues continues with M&C Saatchi, the boutique successor to the original Saatchi & Saatchi, looking towards a share float in June.

This time around there will be no grandiose ambitions to emulate the past - which included an attempted takeover of the Midland Bank - or to try to compete with WPP Sir Martin Sorrell's advertising powerhouse.

The idea is to raise some fresh capital (around £10m) to put back into the business and to motivate staff.

But from small beginnings...