The on-off takeover saga at Blenheim took another twist yesterday when the exhibitions group confirmed it had received a further approach that "may or may not lead to an offer for the company", albeit at a level the board had previously rejected. Ciarn Barr at Deutsche Morgan Grenfell said: "Spending has slipped but I think they will manage to restrain it."He also predicted that rapid growth in tax revenues, due to consumer spending picking up, would come as a pleasant surprise.The financial markets are likely to remain on edge until after next Tuesday's meeting of the Federal Open Market Committee.The risk of an increase in US interest rates can not be completely ruled out despite last week's unexpectedly low inflation figures.Industrial production and capacity figures due today are known to be closely watched by the Fed. A freeze on the public sector pay bill for the fourth year running is also likely.Leo Doyle, an economist at investment bank Kleinwort Benson said: "Existing plans are already really tough. Analysts expect the year-on-year growth in output to fall to just over 3 per cent and would be alarmed by higher growth.The Dow Jones industrials index was more than 36 points higher at 5,874.77 by late morning..

When they take off another few billions in the Budget, it will be very difficult to deliver." He predicted that the PSBR would stick at pounds 29bn this year and next - the same as in 1995- 96.Other City experts are more optimistic. The reason for the disappointing performance has been expenditure growth running at more than twice the rate needed to hit this year's target. Many City experts reckon this year's PSBR will exceed the Treasury's pounds 27bn forecast.Yet the indications are that Kenneth Clarke, Chancellor of the Exchequer, is looking to cut more than pounds 3bn from existing spending plans to announce tax cuts in November's Budget. And recent surveys suggest that official figures for retail sales last month will rebound.The gap between government revenues and spending has been scarcely any lower this financial year than last year. Shares in London, however, still managed to set another record, closing up just over 9 points at 3,977.2 in very light trading. But this week's economic statistics are expected to be less encouraging than the recent run of indicators pointing to rapid growth with low inflation. Analysts expect today's figure for the public sector borrowing requirement in August to amount to more than pounds 4bn following a surprise repayment of pounds 1.7bn in July.

An attack of nerves about figures for government borrowing due today and retail sales tomorrow prevented the FT-SE 100 index from passing the symbolic 4,000 level. There's a lot of information to be gathered and some of that information is not very easily available," said Mr Kinnock.It also emerged that the European Commission has decided to extend its inquiry further, casting further doubt on BA's aim of getting the alliance under way by next April.The EC is already investigating seven alliances between US and European carriers and is examining proposals by United to transform existing links with Lufthansa and the Scandinavian carrier SAS into a trilateral partnership.. The current stumbling block is thought to lie more with American, which is believed to be insisting on hanging on to the bulk of its Heathrow slots.Separately, the regulatory hurdles which the alliance needs to clear became even more complex yesterday when the European transport commissioner, Neil Kinnock, said the EC's own investigation into airline alliances, begun after the BA-American announcement, would be unlikely to reach any conclusions until next year."It would be very difficult before Christmas. At present American flies only to Chicago from the two regional airports but would launch new services to Dallas, Miami and Los Angeles if the alliance is given the green light.Mr Crandall saw the Deputy Prime Minister, Michael Heseltine, yesterday to argue American's case and flies back to Dallas at the end of the week.The OFT's recommendations are expected to be passed to the President of the Board of Trade, Ian Lang, in the next 12 days, possibly as early as Friday.A decision not to go for an MMC referral would represent a victory for the Department of Transport, which has given the alliance its broad backing.Intense discussions between BA, American and OFT officials have been continuing for weeks aimed at finding a compromise acceptable to the two carriers without the need for an investigation by the MMC. BA's chief executive, Robert Ayling, has insisted that the two carriers should not be forced to surrender slots as the price for regulatory approval.But industry observers believe BA and American will have to give ground to accommodate the objections from rival carriers, led by Richard Branson's Virgin Atlantic and United Airlines of the US.Robert Crandall, the chairman of American Airlines, in Britain this week on a "hearts and minds" mission to win support for the alliance, has floated the idea that the two carriers might lease slots at Heathrow to other carriers rather than give them up outright.He is also promising to increase American's regional services from Manchester and Birmingham if the alliance is approved. A lengthy investigation by the MMC could also scupper hopes of an open skies agreement being signed between Britain and the US because it is conditional on the alliance going ahead.Instead the OFT looks set to approve the tie-up, on condition that the two carriers give up some of their lucrative take-off and landing slots at Heathrow. The Office of Fair Trading is preparing to tell ministers that the alliance, which would give BA and American up to 60 per cent of key transatlantic air routes, should not be sent to the MMC. BA has made it clear that it will walk away from the alliance if it is referred.