Reality sneaks up on Brown

WILL Gordon Brown have to lower his growth forecast for next year in the Pre-Budget Report? At present he is projecting a 3% to 3.5% expansion for 2005. But the indications are that this is going to be difficult to achieve.

Manufacturing output, which showed signs of revival this year, is back in the doldrums. The housing market is softening in the face of surging interest rates. The big issue still to be settled is whether property will experience a hard or soft landing. Evidence from the High Street suggests that, with a few exceptions, the household spending boom may be over.

Economists at the International Monetary Fund are projecting 2.5% growth next year. Brown disputes the forecasts, arguing they are out of date. Yet the latest data signals that despite past triumphs in outperforming the Washington experts, this time the IMF may be right. If that proves to be the case the Pre-Budget Report, due in late November or early December, will have to rejig the numbers. Lower output will throw the projections for the public finances off course.

The National Institute, in its latest forecast, says growth fell back to trend of 0.4% over the three months to September. This compares with a growth rate of 0.8% as recently as the three months to July.

The main factor behind the global slowdown is the surge in oil prices to above $50 a barrel, with many experts predicting they have not yet peaked. Paradoxically, it was Brown who was most alert to this possibility at the recent Group of Seven session. The Chancellor gatecrashed the communique with a far stronger warning on energy prices than had been predicted. Capital Economics describes August manufacturing-data as 'truly dreadful', and suggests that industry is in danger of falling back into recession. Factory output fell 0.8% in August after a 0.4% decline in July.

Of the 14 components of the index, only three increased. Production of machinery tumbled 3.2%, suggesting that the recovery of business investment is slipping. Tech and telecom output is now 25% below the peak of the technology bubble.

The housing market still looks confusing. The Halifax index shows prices still rising, albeit at a slower rate. But many experts believe that a crash could be on the way, especially in the more dodgy buy-to-let sector.

All of this indicates that the Bank of England will not need to raise interest rates today. Indeed, with the economy weakening fast there may be no need for further rises this year.

Spanish practices

DURING the phoney battle for Abbey that waged throughout August, accusations were bandied around over corporate governance standards at Banco Santander. Despite this, the Spanish bank has been allowed to march into Britain and looks set to take control of one of the nation's largest consumer banks.

The most likely alternate buyer, HBOS, took itself out of the race because it feared that the deal might undermine shareholder value - especially if a competition inquiry took place.

Now we learn that Santander's swashbuckling chairman Emilio Botin is to stand trial in Spain on allegations that he helped clients evade taxes in the 1980s. Botin, Santander board member Rodrigo Echenique and two former executives could face prison sentences. They also have been asked to post a bond of £56m.

If these were British bankers seeking to take control of Abbey it is unlikely they would even arrive at the starting gate. The Financial Services Authority (successor to the Bank of England as bank regulator) would be asking if the current Santander board is 'fit and proper'.

Better for the authorities to hold up approval of Santander's bid until the cases are resolved, in order to protect investors and depositors.

Baker wager

MEN'S fashion group Ted Baker prides itself as the master of cool as visitors to the firm's Kings Cross headquarters in London quickly find.

As the company's latest figures show, it is able to put older established rivals like Austin Reed to shame and is even daring to move on to its competitor's Regent Street turf.

Like many British firms before, it is now trying its luck in the US. So far its expansion into America has taken it to places such as New York, San Francisco and Miami, regarded as among the more edgy cities. Now it is moving to Las Vegas, which boasts the highest retail sales per square foot in the country.

But funky, trendy or chic it is not. There must be fear of an American step too far.