New hope for world trade

A CATASTROPHE for the world economy was predicted when trade talks broke down in acrimony just ten months ago. It looked as if decades of trade co-operation and tariff reductions would give way to beggar-thy-neighbour policies and a transatlantic trade war.

It hasn't quite happened like that. World trade volumes have actually soared, climbing from 3.1% in 2002 to a projected 6.8% this year, according to IMF projections. Global output is at its strongest level for several years, fuelled by China and India, two countries making the most noise at the failed Cancun jamboree.

Against this background it would have been easy for the 147 nations which make up the World Trade Organisation (WTO) to give up the ghost on a new trade deal and allow the world to splinter into a series of trade blocs.

That partly has happened, but despite this the WTO has lifted itself out of its stupor and made a fresh run at the new trade round. This has required some substantial concessions on agricultural subsidy by the European Union and United States, both of which have agreed to dismantle some of the apparatus which allows them to undercut poor countries in the sale of commodities from sugar to rice.

It was important that the food deadlock was broken - however imperfect the deal - to begin work on bringing down barriers to manufacturing and services.

Britain and the US, with their specialist skills in services from banking to IT and insurance, stand to gain greatly if barriers tumble. The benefits already can be seen for the developing world with the export of routine call centre and backroom tasks to India and the Far East by companies such as HSBC. The economic benefits from multilateral trade, as opposed to bilateral deals, are enormous.

It is timely that the trade breakthrough comes when the world economy is doing well. It should remove risks of tariff wars when, as is inevitable, the strong upward swing in the trade cycle takes a dive.

Halifax swoop

HBOS, owner of Halifax and Bank of Scotland, has stolen the thunder from world-beater HSBC with its declaration of interest in Abbey. As Britain's biggest mortgage lender, and the nation's fifth bank, HBOS has an interest in keeping foreign interlopers off its patch and bulking up.

Now we know it is serious. Investment bankers Lazard are crawling over the books, and City competition lawyers believe they have found a route which might carry HBOS through the regulatory maze.

As we pointed out here last week, the Abbey share price, at above the Santander offer, is inviting in another buyer. Lloyds TSB was among those throwing cold water on a British counterbid on the grounds of competition worries. But its own ill-fated £19bn approach to Abbey in 2000 failed because of current account market shares, not mortgages.

Anyone scanning the variety of home loan offers available could vouch that there is no shortage of competition in home loans.

The HBOS decision to put a toe in the water could be the signal for broader interest. When Safeway came on the market every rival grocer in the UK felt the need to join the race.

I would be very surprised if at least one or two of the other banks, with Barclays and Royal Bank of Scotland the favourites, were not doing their sums too. A competition inquiry would hold matters up, but it might clarify the rules of engagement in British financial services

There must be some sympathy for the view that it makes no sense to allow UK banks to fall into overseas hands because they are blocked from amalgamating any further. But the banks could do themselves a big favour by competing-more strongly on customer services. Clearly, absorbing Abbey would be no more than a gnat's bite for HSBC, which just turned in a stunning £5.14bn profits in the last six months.

But it may feel that its next big deal should be in the developing world, having bought Household in the US and Marks & Spencer's financial arm in quick succession.

An offer from HBOS might be welcome to Abbey's 1.7m private investors. Only Halifax, with 3.5m small shareholders, has more.

As we saw in the M&S battle, in the end it was the small investors who won it.

Manufacturing revival

THE latest British purchasing managers index shows manufacturing on a roll, with new orders and exports strong. These are the best figures from UK manufacturing for more than a decade. The industrial recovery now looks well founded enough for business to take a further rise in base rates this Thursday in its stride.