Today we will learn if the Bank of England decided to raise interest rates again. Most of the betting is that they will. A major reason for people considering a rate rise to be inevitable is the continued strength of the housing market. It would appear, though, that, not only is house price inflation not the sole reason for the hawkish attitude of the monetary policy committee, it is not even the most important one.
Evidence exists to suggest that, despite the evidence of remortgaging, consumption growth has slowed over recent years when the value of our homes has risen at its fastest rate. Indeed, evidence of a link between housing and the rest of the economy is far from clear. Arguably, the overall strength of the UK economy and the fact that it is using up spare capacity at an alarming rate is more important. Once that capacity is gone, rising inflation is inevitable.
The ability of the UK economy to create capacity at a time of strong economic growth has been remarkable. That and the strength of the currency, of course, is why inflation has been subdued. We should not forget the dampening influence of the supply of cheap goods and services from the Far East. But all this could come to an end if demand for capacity starts to exceed supply. Nowhere is this more likely to happen than in the labour market.
There are plenty of hawks around who would like to see rates above 5 per cent. This would certainly dampen economic activity and, doubtless, the manufacturing industry in particular would cry foul, seeing their competitive edge, already eroded by the rise in sterling, further damaged. In the end, though, the Bank of England has a duty to head off problems rather than just to react to them.
Last week, oil took centre stage. Aside from continuing news from Shell (it seems a large number of jobs are to go, presumably to demonstrate that it still manages the business tightly despite recent adverse publicity), BP continued down the path to creating more shareholder value. The decision to dispose of its lower margin plastics business, likely to be floated off as a separate company, was well received. Estimates vary as to how much this would net BP but it will be billions of dollars.
Meanwhile, the finance director of Russian oil giant Yukos was in London warning foreign oil companies that higher taxation could be just around the corner, Yukos having just been hit with mammoth tax demands. But then this is a company which has already earned the wrath of the Russian administration. It would be wrong to read too much into his comments but it was a reminder of how valuable oil is to the Russian economy and why it is likely that the oil majors will be looking to Russia as an important production area in the future. Oil, I suspect, will be in investors' minds for a little while yet.
We are now in May and the prospect of exiting the market to enjoy balmier weather and the benefits of the season will be crossing a few investors' minds. With economic news generally robust, there seems less reason to turn one's back on shares but the silly season will soon be on us and the stories that get most attention will not be those that give us the best steer as to what is really happening in the financial world.
One story which the company concerned would doubtless have rather left untold was the unfortunate release of an internal document by fund management giant Amvescap. Following the publication of its first-quarter results, a rogue email was sent to UK investors and analysts which included an apparent estimate of how big a fine the group may receive as a result of current US investigations into certain fund management practices.
Amvescap was swift to point out that these documents were for internal consumption only and had not even been approved but the cat was out of the bag and trading in the company's shares was particularly heavy despite a number of organisations declaring themselves insiders as a consequence of getting this information. It all goes to show how much more careful we have to be in an electronic age. Hitting that wrong button on the computer can be just as dangerous if you work in investor relations as on a proprietary trading desk.