Rate rise is on the retreat

THE new Consumer Prices Index, unveiled a week ago, was always going to pose a problem for the Bank of England. But just how tricky can be seen from the latest CPI - the Brownite name for the European harmonised index of consumer prices - which fell from 1.4% to 1.3% in November.

This is obviously welcome for consumers since the main driver was an unexpected decline in clothing and footwear prices. The cost of food and leisure also appears to be tumbling. As has been the case for some, the price of goods is falling and the price of services rising, reflecting the imbalance in the economy.

The displaced RPIX index, which includes a house price element, continues to fall too, suggesting that inflation is not a worry. It is worth noting that only once since Gordon Brown became Chancellor has the CPI exceeded the new 2% target for inflation.

If the interest rate-setting Monetary Policy Committee had been using this measure there would been virtually no need for any interest rate changes over the last six years, irrespective of the ups and downs of the trade cycle.

This is precisely why the new index poses a difficulty for the Bank. There are all kinds of reasons why the MPC might want to adjust official interest rates in the coming months.

It is by no means clear, for instance, that the house price bubble is over. The Halifax says house prices will climb by 8% next year. This would be a substantial downward movement, but not enough to bring an end to the mortgage and credit boom.

As things stand, expectations of a stiff rise in interest rates in 2004 (after the quarter-point increase to 3.75% in November) must now be in retreat. If that is the case, there could well be a housing revival in the spring beyond that envisaged by the Halifax.

Financial markets already are trimming expectations for interest rates at the end of next year from 5% to less than 4.75%. World recovery may well mean higher energy, goods and raw materials prices in 2004. But not on a scale to convince the Bank of England that it needs to act to meet its target.

Parker choices

WE have become so used to companies reaching outside for new, fresher and younger leadership that the choice of Alan Parker (not the one who runs PR firm Brunswick!) as chief executive of Whitbread came as something of a surprise. At the age of 57, Parker, who has been running the underwhelming hotels division, might not have been the obvious choice.

Whitbread shares have had a good run over the last year despite the problems of its upmarket Marriott chain. But despite this performance, one has the impression that the firm is ripe for some change. It is ragbag of leisure companies ranging from the fashionable David Lloyd clubs at one end to the distinctly less healthy Beefeater, Brewers Fayre and Pizza Hut. In an era of corporate focus, Whitbread looks like a motley collection of companies, assembled in a hurry in response to the beer orders that forced it to off-load historic brewing interests.

Parker must recognise this more than most, having watched the budget Travel Inn chain outperform Marriott in the post-9/11 era. If he is to begin on a clean-up of the portfolio, the trophy hotel division, which represents a disproportionate amount of group assets, would be a good place to begin.

Heathrow cop-out AS a resident of the London Borough of Richmond upon Thames I have more reason than most to reject the idea of a third runway at Heathrow. Noise pollution can be a nightmare.

Despite this, one cannot but recognise the overwhelming economic-case for Heathrow rather than Stansted. As the key hub for the country's main carriers - BA, Virgin Atlantic and bmi - it is critical to financial prospects. This is even more so given the recent merger between Air France and KLM, which will give the French flag-carrier access to Schipol in the Netherlands.

Heathrow is critical, not just to British carriers, but to the future of the City as an accessible financial centre and to the entrepot traffic which passes through London.

This is not to say that an extra runway at Stansted is a bad idea. The demand for cut-price flights to Europe is proving insatiable and a healthy budget airline industry is important. But not as critical to Britain's economic future as Heathrow.

BA chief executive Rod Eddington had the good grace to welcome the government's decision and the glimmer of light for Heathrow in 2015-2020.

But that is a target so far in the future as to be all but meaningless.