Inflation: Wise old lady

Grainne Gilmore

If anyone from the Bank of England gives you a racing tip, you should consider having a flutter. Their forecast for inflation — that it will peak this month or next before falling back — seems to be coming true, if today's producer prices are anything to go by.

The sharp drop in oil prices has obviously eased the pressure on manufacturers, letting them cut prices during August. But there is another significant factor at play — namely weakening demand. This is putting pressure on manufacturers to cut prices too — and the 0.1 per cent dip in core prices, which exclude volatile food, drinks, tobacco and petrol prices, suggests that manufacturers are responding to this. Analysts say it will take a while for these figures to affect the headline inflation figure, which is currently at a 16-year high of 4.4 per cent. But if this trend continues, it is likely that inflation will start to fall in a month or two.

This is great news for homeowners as it opens the door for rate cuts. The Bank of England has already signalled that it will not cut until it has evidence that inflation is starting to fall. Today's figures are the first sign of that.

Nationwide: Mutual friend

Christine Seib

Nationwide's deal today with the Derbyshire and Cheshire building societies might be seen as a triumph for mutuality over public ownership.

While quoted banks beg shareholders for extra cash, Nationwide rescues two smaller rivals in a way which validates its strategy and broadens its asset base.

Britain's biggest building society denies that it was encouraged to do the deals by the financial regulator. But its agreement to merge with the Derbyshire and Chesire does demonstrate how neatly such things can be arranged when irritating details such as an exchange of stock and cash and the approval of shareholders do not exist. It is Nationwide's mutual status that has enabled it to afford such deals.

While Northern Rock was teetering on the brink of collapse and other high street rivals were announcing multi-billion pound writedowns on structured credit products, Nationwide also had queues outside its doors - to put money in. Customers were attracted by the staid and stable air of the building society.

Expect other small building societies to be knocking on Nationwide's doors.

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