Outlook: The case for another rate cut grows stronger by the day

Skellett's worst week; Jean-Marie Messier Â

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Manufacturing slump forces cut in UK growth rate

Wessex CEO says £1m payment was no bribe

The time has surely come for another interest rate cut. Up until this week, the Monetary Policy Committee could reasonably argue justification in resisting calls for more cuts. The economy has been as flat as pancake ever since 11 September, but certain parts of it, consumer spending and housing, were racing away in a manner which even Gordon Brown, the Chancellor, thought required a rise in rates, not a cut.

That picture has changed. Consumer spending in July was more subdued than generally thought, and although mortgage lending seems to hit new records by the day, there are now clear signs of a slowdown in the overheated housing market. Yesterday's downward revision in second-quarter GDP growth to just 0.6 per cent confirms the economic stagnation we all suspected but the Government still refuses fully to accept. With inflation nearly a full percentage point below the Government's target, it's hard to see how a further quarter-point cut in rates could do damage. The risk at the moment is not that of inflation, but deflation.

In the US, the chances of a double-dip recession have grown markedly in recent weeks. Some areas of consumer spending remain buoyant, notably autos, but that's only because the manufacturers are virtually giving the things away. The risk of outright deflation, something which has been talked about for ages but has generally been dismissed as remote, is also growing.

Alan Greenspan, chairman of the US Federal Reserve, needs everyone to keep spending, even if that means household debt grows yet further. Once households stop spending and start saving so as to cut their debts, there is a real danger of what Keynes once called the "paradox of thrift" setting in. Spending less and saving more increases deflationary pressures, and if prices start falling as well, the real value of household debt would rise. A serious downward spiral in activity would set in.

If the US cannot be relied upon to kick start an economic recovery, it's hard to see where else an international rescue might come from. Germany, once the great engine room of European growth, seems to be spluttering to a complete standstill. At one end of the spectrum, the stability pact rules out any scope for tax cuts. At the other, monetary policy is in the hands of an authority that has to take account of inflation in Spain, Ireland and Portugal. Germany can neither cut taxes nor lower interest rates to lift the economic gloom. It looks to be completely stymied.

France has already voted a centre-right regime back into power. Germany may soon follow suit with Edmund Stoiber. But neither is a hand-bagging Margaret Thatcher and both seem to lack the political will or backing to take on the unions. One way or another, there will be no fifth cavalry riding in from Europe. If there is a route to economic salvation, it's in our own hands. More by chance than design, some of the right things are already happening. Government spending is rising sharply, taking up some of the slack left by a declining private sector. But from next April onwards, taxes will start rising too, further depressing demand. The case for more interest rate cuts is beginning to look unanswerable.

Skellett's worst week

Colin Skellett, the chairman and chief executive of Wessex Water, was back at his desk yesterday loudly protesting his innocence and plainly seething with anger over the way he was so publicly arrested over allegations of a £1m bribe. You have to go back as far as the Maxwell scandal to find such a high-profile dawn arrest of a well-known business figure. When Kevin Maxwell was arrested, the press were tipped off the night before so that by the time the police arrived there was a veritable media circus outside to witness the event. Flinging open an upstairs window, Kevin's wife, Pandora, shouted: "Clear off the lot of you, or I'll call the police." Came the reply: "Madam, we are the police."

They never did get their conviction, but at least on that occasion there was good cause for an arrest and a trial. Tens of millions of pounds of pensioners' money had been stolen to prop up Maxwell senior's failing business empire. On this occasion there's every possibility that the flatfoots have simply screwed up. If the account of events being given by Mr Skellett, as independently corroborated by Wessex Water yesterday, is correct, the police have simply got the wrong end of the stick. Mr Skellett doesn't dispute that he was paid £1m by the Malaysian company that took over Wessex Water, but insists that the payment was agreed after the sale as a five-year, consultancy lock-in. Prior to the sale, there had been no discussion of a payment at all. Far from being hand-in-glove with the Malays at the time of the sale, Mr Skellett was actually batting for a rival private-equity bid from Royal Bank of Scotland, which promised a cut of the equity to the management. It came as a surprise to him, and everyone else, when Enron sold to the Malays instead.

So how come the police arrested him? The only explanation Mr Skellett is able to suggest is that the payment into his bank account of such a large sum of money from a Malaysian source must have aroused suspicion, given the sensitivity that has come to surround anything concerning Enron, and that the banking authorities must then have asked the police to conduct an investigation. Whether it was wholly necessary to arrest the man and publicise it in a release to the press before first questioning Mr Skellett, Wessex Water, Enron or the bankers to the sale, Schroder Salomon Smith Barney, is for others to judge.

So that would appear to be that. Only, of course, it isn't. Unwilling to admit a mistake, the police have remanded Mr Skellett on police bail until Christmas while further inquiries are made. If the allegation weren't so serious, the whole thing would be comic. As chairman of the rail contractor Jarvis, Mr Skellett is already involved in one investigation, the Potters Bar rail-crash inquiry. Not in his wildest imaginings would Mr Skellett have thought that a 40-year career in the water industry would end in such pyrotechnics.

Jean-Marie Messier

Jean-Marie Messier, the deposed chairman of Vivendi Universal, is back. Well, perhaps not quite, but he's back on the front cover of Paris Match, photographed with his dogs in his private garden outside Paris. You just can't keep a good man down, can you? Mr Messier has shunned the press since his ousting last month, but he's certainly not planning to go quietly.

According to Paris Match, he's writing a book, How I was betrayed, and if he doesn't receive his redundancy cheque in the meantime, he's also planning to make a scene at a board meeting next month of Vivendi Environnement, where he is still chairman of the supervisory board. Further out, the magazine says, he's planning to settle with his family in the United States, leaving all those that betrayed him behind.

Mr Messier believes he was stitched up by the French establishment, which up to a point is true. But it's only a part of the story. There was no rhyme or reason behind the media goliath he constructed, and financially the whole thing was built on quick sand. It was largely Mr Messier's own lack of judgement that betrayed him.

jeremy.warner@independent.co.uk