Tide turns on interest rates

THE decision by the Bank of England's monetary policy committee to keep interest rates steady at 4% is no great surprise. Struggling manufacturers have been pleading for a cut. Indeed, their woes were all too visible in the latest Office of National Statistics figures, showing that their profitability is languishing at levels last seen in the early Nineties' recession.

But with consumers on the rampage and house prices spiralling upwards, a reduction was never really on the cards.

At the time of the last cut, to 4% in November, analysts predicted that further reductions would be needed to restore consumer confidence in the wake of September 11 and to bolster the manufacturing sector.

Lower rates have, however, signally failed to lift industry's gloom. What they have done is to drive an unprecedented spend, spend, spend mentality. Bank of England Governor Sir Eddie George has already warned that interest rates may have to rise to stem the plastic-backed consumer boom.

Across the Atlantic, the Cassandras' worst predictions for economic catastrophe following the terrorist attacks have not come true. Many on Wall Street are heralding the first shoots of a recovery. Markets will be listening attentively to US Federal Reserve supremo Alan Greenspan's speech on the American economy today, hoping to detect any sign that he agrees.

There are some positive indicators. US jobless claims fell 56,000 to 395,000 last week, compared with a nine-year high of 535,000 just after September 11. Retail sales data is mixed, however, with discount outlets doing better than higher priced department stores. Economists at Deutsche Asset Management predict a solid pick-up in the US in 2002 though, as they point out, the timing is hard to predict because of continuing uncertainty following the attacks.

A dramatic hike in rates either side of the Atlantic looks unlikely. Most economists reckon that both the Fed and the Bank of England will want to hold rates steady until they have solid evidence of a pickup, which is unlikely before spring or early summer.

Some suggest that there may be further small cuts in rates as an insurance policy against any backsliding.

The situation is not clear cut, and there is certainly still plenty of gloom out there, not least in emerging markets such as Argentina and high-profile corporate collapses such as Enron.

But barring an unexpected downturn in the economy, it looks as though the rate-cutting tide here and in America has now turned. The question now is when, not if, rates will rise.

Who's next?
THE US backers of drug-testing company Huntingdon Life Sciences seem to be just as lacking in bottle as the Brits.

Not so long ago it seemed as though the Americans would become the saviours of the firm, which has been the target of sustained and violent protests by animal rights activists.

Finance house Stephens Inc acted as a white knight by providing it with lending facilities when UK banks ran scared. Cambridge-based HLS even decided to shift its domicile to Maryland, USA, in the vain hope that its investors would be left alone. Sadly, Stephens is now selling its interests after its president Warren Stephens had his New York home vandalised by extremists last week.

Taking the decision to sever links with controversial companies such as HLS is on one level understandable. No one relishes being targeted by violent protesters. It is also undeniable that Huntingdon has a highly controversial record on animal testing. But the problem is that if no one stands firm, these so-called activists will get the message that thuggery works.

What will then stop them from targeting other companies whose activities they deem unacceptable - oil giants, cigarette makers, perhaps even supermarkets stocking GM foods?

Pension crusader
TORY MP David Curry is crusading to end the iniquitous rules forcing people to put most of their retirement nest-eggs into bad value annuities. His private members' bill gets its second reading tomorrow.

It is eminently sensible, suggesting that people should be allowed to buy a mini-annuity at age 65, and then be free to invest the rest of their savings in a retirement income fund. We can only hope that the government, which professes to be keen on pension provision, listens to the voices demanding reform of the hated annuity rules.

Otherwise millions more pensioners will be stuck with investments that are outmoded, inflexible and pay miserly returns.