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Weak consumer spending was a key factor driving December's unexpectedly large half-point cut in interest rates, according to the minutes of the latest meeting of the Bank of England's monetary policy committee. The minutes noted that consumer spending had grown less quickly in the third quarter than the Bank had assumed in November's quarterly Inflation Report.
Weak retail sales figures for October suggested that this trend had continued into the fourth quarter, although since the meeting November's sales data have turned out much stronger.
Financial Times reports that consumer spending has been lower than the Bank expected throughout 1998, despite the fact that employment incomes had continued to grow strongly and that total net wealth remained high throughout the year. The committee discussed several possible explanations.
Spending may have been weaker because consumers brought forward purchases of durable items in 1997 to take advantage of windfall payments. Consumers may also have been moreworried about the outlook for jobs than the Bank thought, prompting them to save more. The committee also wondered whether consumers might have reacted differently than in the past to changes in asset prices. The tax rises imposed on the corporate sector in the last two Budgets may also have had a bigger-than-expected impact on consumers.
Finally, consumers may have become more price-sensitive, postponing purchases to wait for bargains. The committee noted that the National Institute of Economic and Social Research estimated that growth in the economy as a whole had stalled in the three-month period to November.
The committee also noted that while the labour market remained tight, some indicators suggested it might now be easing. When it came to the immediate decision on rates, the minutes identified four camps. As in November, experts alone dissented in favour of a three-quarter point cut, arguing that short-term rates were too high relative to long-term rates and to short-term rates in othercountries.
Another camp argued that a half-point cut to 6.25 per cent would be a step towards neutral. But the committee noted that, to the extent that it was a useful concept at all, the neutral interest rate--one which would neither stimulate nor depress the economy -- could lie anywhere between 4.5 and 6.5 per cent.
A counter-argument, perhaps advanced by former Treasury chief economist Sir Alan Budd, was that arguments about interest rate neutrality had been used in the mid-1980s to justify a policy that was too loose.
Net software for entrepreneurs
Blackboard Inc. sits at the intersection of distance changing worlds. With office suites at 19th and M streets NW, it is set amid Washington's power lunch corridor. But befitting an Internet upstart dominated by people in their twenties, the 18-month-old educational software firm is more akin to a Silicon Valley garage than the grown-up Washington that surrounds it, says Washington Post. Blackboard likely the only business in the neighborhoodwith beanbag chairs, a Spy Hunter video game and a large Tweetie Bird doll.
Power lunching? ``We sometimes suggest lunch at the Palm or Sam and Harry's when we talk to our financiers,'' said co-founder Matthew Pittinsky, 26. ``But then we usually mutter McDonald's or Subway.'' Which, on most days, is where they wind up. Pittinsky and co-founder Michael Chasen, 27, have little time for sit-down meals anyway. Despite being engaged and married, respectively, they are effectively wed to their desks. Pittinsky's is adorned with a stuffed Dilbert, Chasen's with Pez dispensers and a can of Pledge.
They are leading overloaded lives to pioneer uncharted business territory. Blackboard makes software that helps universities set up classes online. Their products allow faculty members to create World Wide Web sites to replace or supplement lectures and reading material. They let students check grades or download assignments from the Web. This would allow, say, a Georgetown psychology major to check the next week'sreading assignments while home for the weekend in Havre de Grace. The company also runs two Web sites where professors can host classes, regardless of whether their institutions own Blackboard software. More than 1,000 instructors from locales as far-flung as Japan, Ireland and Australia have ``hosted'' classes on this site.
``I would call this an `education company' rather than an Internet start-up,'' said Pittinsky, the company's most visible face. Indeed, he said, most of Blackboard's staff of 40 up from eight in April have education-related backgrounds.
Fifty universities among them Yale, Georgetown, Cornell and Tufts use Blackboard software for online instruction. Blackboard charges according to what products the colleges buy. Prices range from $5,000 to $300,000 depending on how elaborate the software packages are.
``The thing has exploded here,'' said Nick Laudato, who coordinates technology for the University of Pittsburgh's computer-learning program. In the fall term just ended, Laudato said,Blackboard software assisted in the instruction of 22 classes; for the coming term, professors will put 106 courses online. Until June 1997, Pittinsky and Chasen worked at KPMG Peat Marwick LLP, in the consulting giant's higher education division. They had met years before as students at American University. They pledged the same fraternity Sigma Alpha Mu and became roommates. Pittinsky wanted to be a high school social studies teacher, Chasen a computer scientist.
When they were seniors, Pittinsky ran for president of the student body and Chasen ran his campaign. Pittinsky won, the first sign that these two might make good partners. After graduation they stayed in touch through their stints in various graduate programs. In 1996 they wound up back in Washington at KPMG.
There, they noticed a trend in higher education: Schools were focusing heavily on developing Internet-based learning programs. The market opportunity seemed unmistakable. Up to that point, higher education had remained largely untouched bythe Internet, Pittinsky said, especially relative to industries such as publishing or travel. Before joining KPMG, he and Chasen collaborated on a software product that helped high school students organise their college search criteria size, tuition, geographic region, etc. and create personalised databases and rankings.
``Learning is almost all being done in school, not on the Web,'' said Pittinsky, but he added that this will steadily change as the Internet grows. Blackboard's logo--the likeness of a blackboard morphing into a chip--underscores the societal transition the company is attempting to seize upon. Within months of its June 1997 launch, Blackboard had amassed more than $600,000 in private investments. The founders met many of their benefactors through Washington area technology events and networks mainly.
In April, the company purchased Course Info LLC, an Ithaca, N.Y., boutique firm that also developed online teaching software. In September, Blackboard received $3.1 million in venture capitalfrom a syndicate of backers.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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