Members reject QE, as well as rate rise

A partnership between the North East Chamber of Commerce (NECC), the Institute of Chartered Accountants England and Wales (ICAEW) and The Northern Echo, the North East Shadow MPC looks at the region’s economy and gives experts from a variety of sectors the opportunity to argue their case for a shift, or hold, in the rate.

Despite the recent announcement that the UK economy is technically out of the double dip recession, the general consensus amongst members is that interest rates should be held at their current level due to the fragile state of the economy. Members agreed also that further QE at this stage would not benefit the economy.

Ross Smith, Policy Director for the North East Chamber of Commerce, led the unanimous decision. He said: “There are strong performances from businesses in the North East at the moment; we’re reflecting the upturn in the UK more generally and there has been strong employment figures in the region over the past few months. However, it is too soon to consider increasing rates as inflation is coming down and the bigger threat is still to growth.”

With regards to further QE, Ross said: “As quantitative easing now stands at £375bn, there is a real risk of diminishing returns by expanding QE. We need to see how The Bank of England’s Funding for Lending Scheme works out as to whether further support on finance may be needed, but I don’t think increasing QE in its current format is the right move.”

Keith Proudfoot, Northern Regional Director, Institute of Chartered Accountants England and Wales, believes that interest rates should be held and there should be no further QE. He said: “I was stuck in America because of the hurricane, but it was good to note that the American indicators on issues such as employment and economic activity are positive. These normally give an indication of what is to come in the UK, so, hopefully, we will soon see this feed through to the North East.”

David Coates, Managing Director of Newsquest North East, said: “There still is not any compelling justification for increasing interest rates. The economy remains fragile and while, technically, we may be out of the double dip recession, there are a number of factors influencing the statistics, which will not have the same positive impact next quarter. While profitability has stabilised, primarily through lower costs, revenues are still not growing.

“There isn’t really scope for further QE. While the last set of inflation numbers were encouraging, with energy prices surging again and the poor harvest pushing up food prices, I do not think the next few quarters’ inflation numbers will look quite so good.”

Anne Elliott, Partner at Latimer Hinks Solicitors, in Darlington, said: “Interest rates should be held and there should be no further QE. There has been no real movement in terms of improvement in business confidence and the level of new commercial work; clients are deferring spend on fees for other than absolute necessities.”

Tony Slimmings, Director at WR Financial Ltd, believes that interest rates should be maintained at their current level due to his observations of the financial sector. He said: “Within employee benefits, such as pension consulting, we are seeing employers holding onto current employee numbers, but not increasing payroll or actively recruiting, leading to the conclusion that employers are stable but not growing. Therefore, any increase in interest rates could still have a substantial negative effect.”

He continued: “I see little point in further QE at the moment, as this is simply added to the bank balance sheets rather than activating economic activity or providing lending liquidity. I remain convinced that direct intervention to stir up economic activity is the most sensible action.”

Jim Willens, Chief Executive of Newcastle Building Society, agrees. He said: “Activity levels in the property market remain subdued and confidence, generally, is fragile. Additional evidence of how the economy is performing is required before further action is taken.”

David Bowles, Chairman of Inova Power Ltd and Non-Executive Director of NDI Ltd, said interest rates should stay the same due to the unstable nature of the economy.

He commented: “Some of the engineering businesses are doing really well, but the service sector is having a tough time. Also, we should not waste money on further QE as it is not finding its way into the economy, just strengthening the banks’ balance sheets.”

Nigel Mills, Managing Director of property investors Closewalk Ltd, said: “Interest rates should be held with no further QE at this stage. We need to see growth figures in this quarter before deciding on action.”

Ajay Jagota, CEO of South Shields lettings firm KIS, believes that rates should stay the same due to movement in his firm’s market being affected by economic uncertainty among individuals. He commented: “There has been very little encouragement within our business as tenants are renewing their tenancies and deciding to stay in their existing accommodation. Also, consumer confidence locally is low, with impending cuts to take place, in particular, universal credit, that would support a rate change.

Speaking about further QE, Mr Jagota said: “Quantitative easing has still yet to have any direct effect on local businesses. In my opinion, it has merely been used to support government borrowings and banks’ balance sheets, which I understand is necessary, but is not an effective tool to help stimulate the economy.”

Jane Reynolds, Tees Valley Business Manager at North East Finance (Holdco) Ltd, believes also that interest rates should be held at their current level. She said: “There is some form of agreement with stability which people are finding slightly more attractive than previously.

“With regards to QE, I believe that this also should stay the same. There are difficulties with open ended QE; people will want to know where that might lead and the hidden consequences to it.”

Andrew Sugden, Head of External Engagement at Northumbria University, said: “Interest rates should stay the same as we are slowly starting to see some confidence around growth, but this is at such a low level that we can’t afford to take any risks and tinker with monetary policy. There should be no further QE, but there remains an urgency to unlock finance for smaller business.”

Catriona Lingwood, chief executive of Constructing Excellence in the North East, believes that interest rates should be held at their current level. She said: “The construction sector returned to growth last month, although housebuilders and commercial developers continue to weigh heavily on the industry. Overall activity in the sector rose to 50.5 in October from 49.5 the previous month, which was driven by moderate growth in the civil engineering sector for the second month running as residential building activity declined for the fifth month in a row. Despite marginal growth in October, it is still weaker than the average and prospects for the sector remain bleak and difficult.”