Martin Flanagan: Bank keeps a weather eye on unions as a hard winter looms

The latest housing survey from the Royal Institution of Chartered Surveyors, out yesterday, showed house prices fell by their sharpest in September since May 2009, while a British Chambers of Commerce report was also doleful.

That follows a slew of data showing that economic growth has slowed in the third quarter of 2010 from a healthy 1.2 per cent expansion in Q2.

Proponents of a further loosening of monetary policy point to this pale picture of growth, with the shadow of the public sector spending axe, and its possible negative economic implications, looming large.

On the other hand consumer price inflation data, also out yesterday, showing it held steady at 3.1 per cent in September, remains mulishly above the Bank of England's mid-term target of 2 per cent. The coming rise in VAT in January could aggravate this.

Those worried about this persistent inflation do not believe that the Bank of England should add to its 200 billion quantitative easing programme, currently on pause.

At its meeting last week the BoE's monetary policy committee (MPC) again decided not to crank up the programme to help get the banks lending again.

But MPC member David Miles made clear in a speech in Dublin yesterday that quantitative easing remains a powerful weapon in the central bank's locker.

The actual MPC vote and rationale, however, will make interesting reading when they are published next week. The balance of probabilities had remained that further QE would remain on hold in the next few months as the BoE seemed to have decided that the economy was moving in the right direction, even if tentatively.

But the wild card has to be the unions' reaction to the coming public spending axe, which is certain to involve a lot of redundancies and likely attacks on generous public sector pensions.

If we see another winter of discontent, with echoes of the late 1970s, and the wider economy is badly hit, expect the BoE to revisit quantitative easing. Interest rates are already so low that any further cut would be spitting in the wind.

It won't just be public sector workers who are hit by public sector cutbacks, however. There's a swathe of British businesses waiting nervously to see how many government contracts will be terminated. To some of these businesses, Whitehall money is not icing on the cake, it is at least the marzipan layer as well.

All this at a time when sentiment in key business sectors such as services and construction is only marginally better than it was in our six-quarter recession.Businesses are said to be cutting back on investment and research spending after a false dawn in the first six months of this year.

Even more than next week's daylight on BoE thinking on quantitative easing, the monetary policy committee's deliberations at its November meeting - after Chancellor George Osborne opens his public spending review box of horrors on 20 October - will be even more instructive.

It could be a long winter.

Food for thought as Waitrose sounds a bullish note

IT'S a truism, but bears repeating, that downturns come and downturns go but big food retailers seem to go on forever.

Tesco, Sainsbury's and Marks & Spencer all recently reported resilient food sales, despite overcast economic skies. To extend the weather metaphor, "Big Food" is not seeing much sunshine, but it is at least dry with little likelihood of thunderstorms.

Now Waitrose has suggested that it might actually do better than resilience in the face of challenging conditions in the next few years.

That outperformance, however, will be partly flattered by new store-openings, with Waitrose having a much smaller stable of outlets than its main rivals. The group has said it plans to open up to 15 supermarkets and 30 convenience stores a year.

Mark Price, managing director of the company, owned by department store operator John Lewis, repeated the industry mantra yesterday that the brunt of consumer cutbacks as the new austerity takes hold will be in non-food products.

History taking in the past few recessions supports this industry optimism. Another factor giving the grocery trade additional confidence is that its back-office operations and firm purchase - in every sense - on suppliers is much better established these days given that virtually all the big players, including Asda and Morrisons, have had serious overhauls.

It all goes to show yet again that food is the ultimate non-discretionary spend, literally more lifeblood than lifestyle.