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Holding interest rates will encourage recovery, say NE businesses
BUSINESS leaders in the North-East have backed a hold in the interest rate as the economy gathers pace on the road to recovery.
Members of the North East Shadow Monetary Policy Committee (MPC) overwhelmingly voted 8-1 in favour of the current 0.5 per cent interest rate, after experiencing growing business confidence, with fears that a rise would disrupt this positivity.
A partnership between The Northern Echo, the North East Chamber of Commerce (NECC) and Tees Valley-based accountancy firm Waltons Clark Whitehill, 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.
None of the members called for any further quantitative easing, with John Elliott, chairman of Ebac, being the only exception to a hold, as he voted for an interest rate rise of between four and five per cent.
Heather O’Driscoll, chair of the committee and managing partner at Waltons Clark Whitehill, reinforced the need for a hold in interest rates as the economy looks healthier with positive indicators, including the recent encouraging GDP and unemployment figures.
“There are positive signs in the economy with the recent GDP figures and unemployment creeping down, so I can’t believe we will see any change in policy on interest rates at present and I see no reason why there should be at this stage. We are seeing clients investing with positivity, though some are still finding access to funding harder to come by and with tighter parameters being set by lenders, but overall things are starting to look healthier, slowly and steadily. However, this is still a time to retain some sense of caution and there is a lot of work to be done.”
Ross Smith, Director of Policy at the North East Chamber of Commerce, was keen for a hold in the interest rate, as there is still a long way to go before unemployment in the region reaches pre-recessionary levels.
He said: “We’re seeing positive investment, which has been a long-time coming, and we don’t want to erase this by normalising the interest rate as this would be too hasty at present. There is no doubt that the North East economy is moving in the right direction, but there is still a long way to go if we are to reach pre-2008 employment levels.”
Beth Farhat, regional secretary for the Northern TUC, also voted for a hold, citing that the economy needs stability for unemployment to be addressed and that there is a need for more permanent work.
She said: “Unemployment may have started to fall in recent months, but we are still in the midst of a jobs crisis. A recent TUC report shows the true scale of unemployment is far bigger than official figures suggest, as nearly five million people say they want work today. With a further 1.4 million people only able to find part-time work, despite needing a full-time job to get by, it's clear that our labour market remains far from at full health.
“We know that the recent fall in unemployment has been driven by short hours, low pay, temporary contracts and jobs that offer no guarantee of paid work at all. These types of jobs cannot form the basis for a secure and sustainable economic recovery.”
John Elliott, chairman of Ebac, who was the only member to vote against a hold in the rate, believes that interest rates should increase to between four and five per cent, arguing that savers are not benefitting from the hold and that a higher rate is needed to drive the economy forward.
Mr Elliott said: “We haven’t benefitted from such low rates for many years, so a rise of between four and five per cent would be a reasonable rate for both savers and borrowers. The hold in the low interest rate is the wrong move from Mark Carney, and he is only going to repeat the same mistakes from his predecessor, and as a result savers are going to be punished.”
Jim Willens, chief executive of Newcastle Building Society, agreed with Heather as he has seen improvements in the housing market, and would like interest rates to remain low so this positivity can continue.
He said: “The housing market is beginning to pick up albeit being early days, but it would be helpful to see interest rates remain low to allow the economy to grow, until a rise is necessary. There are a number of different indicators with positive numbers than in the past, so hopefully this will become a trend, which will see unemployment fall.”
Catriona Lingwood, chief executive of Constructing Excellence in the North East, believes that growing economic confidence is reason for a hold in the interest rate, as projects are now coming into fruition, which will benefit the North East.
She said: “I’m seeing more confidence in the market as we are seeing the housing sector grow with the sale and building of houses. The economy is slowly improving as we are now seeing long-term projects being realised and the recent Hitachi rail contract at Newton Aycliffe is a major boost for the region.”
Graham Robb, senior partner of Recognition PR, concurred with Ross, believing that the hold is giving people the confidence to invest, and with a rise in energy prices and inflation, an increase would not be best at this stage of the recovery.
He said: “With energy price rises and other inflationary pressures, the Bank of England needs to keep forward guidance under review and not allow inflation to get out of control. In my own business I am seeing good growth, but the challenge now is to now make it permanent and sustainable.”
Jane Reynolds, Tees Valley business manager at North East Finance Ltd, also believes that a hold is in the best interests, as she is seeing signs of optimism and growth and for this to continue, the economy needs stability.
She said: “I am seeing signs of growth, and for this period of positivity to continue, businesses need stability in the economy to maintain this level of confidence. The economy is still in a tenuous position, and a rise would only have an adverse effect.”
Andrew Sugden of Northumbria University rounded off the voting in favour of a hold in the interest rate, and believes that Mark Carney’s employment target is a good thing for the North East.
He added: “We are going through a delicate recovery that is growing at no real pace, so any changes to the interest rate would stifle the investment taking place. As a region we are still lagging behind in terms of employment, so the forward guidance targets are an important step.”
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