The European issue will not disappear, the Tories will not have a bigger majority. The focus will still be on what the Tories are going to do to hold on to as many seats as possible with tax cuts and base rates.Comment, page 19. Expectations of an early cut in German and US rates took a tumble yesterday with the release of data showing a rise in inflation in Germany and greater strength in the US economy. The news rattled the German bund markets, which fell back sharply and dampened the spirits of the US Treasury market. Germany’s regional inflation figures in June came as a real shock to the markets, which had been expecting a monthly increase of 0.1 per cent. Instead, consumer prices rose by 0.3 per cent in Hesse and Nordrhein-Westphalen and by 0.5 per cent in Baden-Wurttemberg.
If these figures were repeated at the national level, the year-on-year inflation figure would jump to 2.5 per cent from 2.2 per cent in May, Stephen King, economist at James Capel, calculated. This would move inflation sharply away from the 2 per cent rate the Bundesbank targets.Analysts pointed out that the underlying rate of inflation remained subdued.

The upturn in Baden-Wurttemberg was concentrated in erratic items like food, fuel and personal goods; these may unwind in the months to come. Julian Jessop, European economist at HSBC Markets, believed there was “still a fighting chance” therefore that inflation will fall back to under 2 per cent in coming months.But there was general agreement among economists that the figures put a severe dampener on the prospect of an early cut in interest rates by the Bundesbank when its council meets next week.This was the interpretation reached by the markets, which saw German bunds retreat sharply. The September bund future was down 83 basis points at 93.97, while the yield on the benchmark 10-year bund rose from 6.64 to 6.79 per cent.In the US, durable goods orders rose 2.5 per cent in May compared with April against a consensus expectation of stagnation. This was the first rise since January and the largest gain since November 1994, according to the US Commerce Department.Although the department also revised the fall in April in orders from 4.0 to 4.5 per cent, the largest drop since December 1991, the figures disappointed Wall Street.. British Gas has braved further controversy over boardroom pay with the pounds 265,000 appointment of Stephen Brandon, a vice-president of General Electric of the US, as its commercial director.

Mr Brandon, 48, will also receive a pounds 200,000 golden hello, although half of this will be deferred until next April. His appointment comes weeks after the annual meeting at which shareholders voiced their fury over pay and called for the directors to resign.
British Gas has been dogged by adverse publicity since the end of last year, sparked by a 71.2 per cent increase in the total pay of Cedric Brown, chief executive, to pounds 492,602.The company said Mr Brandon’s golden hello was to compensate for lapsed share options at General Electric. A payment of pounds 285,000 was granted for the same reason to Roy Gardner, who joined from GEC of the UK at the end of last year.The appointment of Mr Brandon, who joins in August, is seen as underlining the trend to seek top-level people from outside the industry.Richard Giordano, British Gas chairman, said: “He brings a broad array of international experience which will help us to sharpen the focus on successful development and execution of strategic projects across our business, particularly overseas.”Mr Giordano has made it clear that he sees British Gas’s future opportunities in the global marketplace as competition and regulation in the UK continue to bite.Mr Brandon, a Cambridge engineering graduate, worked for 13 years as a management consultant with McKinsey & Co before joining GE. His responsibilities with the US group are the co-ordination of operations in South-east Asia. At McKinsey, he was involved in assignments preparing for the privatisation of British Steel and British Coal.Separately, it emerged that British Gas has been freed by the watchdog, Ofgas, from the need to publish prices in its industrial and commercial operations, allowing it to negotiate contracts with customers.The relaxation, to take effect next week, was strongly opposed by British Gas rivals.. East Midlands Electricity yesterday attacked moves by Seeboard to give customers an annual rebate ahead of new price controls to be announced next month by the regulator, Offer, writes Mary Fagan.

Robert Davies, finance director, said the payback of about pounds 8 a year was “not a logical response from a regulated monopoly and not the right strategy for shareholders”.
“It fails to recognise or give credence to the enormous value realised by customers since privatisation,” Mr Davies said as East Midlands announced pre-tax profits of pounds 214m for the year to March compared with pounds 51.2m previously, when the company had pounds 129m in restructuring costs.Underlying earnings per share rose 22.9 per cent to 78.3p and the dividend increased 27.8 per cent to 29p. This was in addition to an 85p-a-share special payout announced in September.The company reduced the workforce by 1,700 during the year as a result of increased efficiency and the disposal of non-core operations including retail. Of the total job losses, about 450 were in the main electricity business, which is expected to have further cuts in coming years.Mr Davies said: “Our major thrust is to add value to the core business and a key part of that is to continue to get costs down.”The company was committed to returning value to shareholders, but nothing would be decided until after the price review, he said.. The Greenbury committee on top pay will approve the use of share options in stock market flotations, and for executives of smaller quoted companies. It has also rejected proposals for a complete ban on the use of share options to reward executive of large companies, contrary to recent reports.
But the committee plans to recommend tighter conditions for options granted in flotations.This will include a year’s extension of the three-year waiting period before profits qualify for capital gains tax treatment rather than income tax.The latest draft of the report, to be discussed at the committee’s final meeting on 3 July, strongly criticises the regional electricity companies and the generators for the way executives have made windfall profits on share options.It will lambast the utilities for failing to devise remuneration strategies that give directors a long-term interest in their companies, by sharing the same risks as shareholders.The committee has nevertheless resisted pressure to recommend a complete block on the use of options for executives in large firms.At least one of the committee members, Sir Michael Angus, chairman of Whitbread, favoured the idea of restricting large firms to long-term incentive schemes and banning options.But the draft drawn up for the final meeting of the committee is understood simply to state a preference for long-term incentive schemes over share options where large companies are concerned. It has drawn back from a general condemnation, leaving its main criticism to their past use by utilities.The draft also says the exercise price of options in a flotation should not be set until a year after trading starts, though other periods considered were six months and 18 months. It will say the exercise price should be based on an average market price over a period.The committee wants to encourage what it will describe as an existing trend towards long-term incentive schemes and away from the windfall profits available from traditional option schemes.