Getting to crunch of gunpowder, treason and plot

Last night, the gunpowder was in evidence as we celebrated Guy Fawkes night, which is now known, by the politically correct brigade, as Bonfire Night.

The treason and plot of Catesby's conspirators and York's Guido Fawkes as the fall guy seems to be less and less known these days.

The fireworks started going off towards the end of last week, as US interest rates were cut by a quarter point to 4.5 per cent.

That indicated that the US economy was weakening. It should be stressed that growth is still in place, but at a lower rate of growth than before.

Also of significance, Citigroup, one of the largest banks in the world, subsequently became another casualty of the US sub-prime losses fallout, as capital adequacy arrangements fell to critically low levels.

The worry was that Citigroup might have to cancel its dividend or raise additional capital through a rights issue.

Markets around the world, which had been posting good increases, fell back again as banking and property stocks were marked sharply lower.

Exchange rates are largely determined by any differential in interest rates between two countries.

The US and UK last had equal interest rates in early 2006.

Although the US started raising rates before the UK did the same, the US halted at 5.25 per cent in the second half of last year, and has since reduced rates twice in the past two months.

Interest rates in the UK kept on being increased to 5.75 per cent, the last rise being in July.

That led to a weakening of the dollar against the sterling, pushing the exchange rate above $2 US to the pound.

Last week, the dollar was trading above $2.08 US, its highest level in a very long time.

Anyone hoping for a cut in UK interest rates this week may be disappointed.

Despite some troubles in certain circles, the UK economy is continuing a strong trend, at a year-on-year rate of 3.3 per cent.

The Bank of England's monetary policy committee still has the remit of controlling inflation through interest rates.

With energy prices rising rapidly recently, that may be the major factor in deciding to maintain rates at their recent relative high.

October's meeting of the committee voted 8-1 to hold the repo rate at 5.75 per cent, according to the minutes of the meeting released a few weeks ago.

Only one member of the committee voted for a decrease to 5.5 per cent.

The committee decided that any cut in rates then would have been seen as a sign of supporting the financial system, rather than focusing on meeting the two per cent inflation target.

A similar scenario is expected this month.

Treason. The nearest I can come up with for this are the recent developments with regards to capital gains tax.

As usual, any tinkering seems to not have been thought through properly, with the potential loss of inflation covering reliefs, meaning that many more people may be caught up in the CGT net than before.

Plot. There is a right royal scrap going on at the moment between Scottish and Newcastle and Heineken.

Once happy partners in a joint venture selling beer to the Russians, they are now plotting against each other to get their hands on the other's half share. It could be explosive.

* Anthony Platts is a Divisional Director in the Teesside office of Wise Speke, and can be contacted on 0845-213-1340. Views expressed are the author's own and are not necessarily held throughout the Brewin Dolphin Group. Past performance is not a guide to future performance. The values of investments can fall and you may receive less than your original investment. Wise Speke is a division of Brewin Dolphin, a member of the London Stock Exchange, authorised and regulated by the Financial Services Authority.