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Interest rates rise is 'inevitable', say North-East businesses
NORTH-EAST business leaders favour a continued interest rates freeze but they are braced for an inevitable rise.
The North East Shadow Monetary Policy Committee (MPC) returned a majority verdict this week in favour of a hold in the current interest rate of 0.5 per cent. However, the committee does expect an inevitable rise as the economy grows and indicators are met.
Members were also against any further quantitative easing (QE).
A partnership between The Northern Echo, 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.
Heather O’Driscoll, Managing Director of Waltons Clark Whitehill and chair of the committee, started off the voting in favour of a hold, as she believes the North East is still yet to see the same level of recovery as other regions, but conceded that rates will eventually have to rise.
“The pressure on the Bank of England to increase rates is building and it is only a matter of time when we are going to have to concede that this is necessary. However, it is not yet time. We are seeing a slower recovery in the North East, and we aren’t seeing the same rate of rises in employment or wages, so I would suggest that we maintain interest rates for the time being.”
Ross Smith, director of Policy at the NECC, agreed with Heather, in favour of a hold, as he believes an increase would strengthen the pound and negatively impact exports.
He said: “The main issue is the strength in the sterling and the negative impact that it is having on exports. The North East is a big exporter and as the economy gets stronger the pound will too, so a rise in the interest rate, at this stage, would only intensify these issues that exporters are facing.”
Colin Fyfe, chief executive of Darlington Building Society, would like to see interest rates rise in February and believes that the economy needs to adjust to normalised rates, but, for now, also called for a hold.
He said: “I have seen new measures introduced by the Bank of England to slow housing growth with the resultant slowing of the mortgage market and unemployment is continuing to fall. I do still feel that we need to begin the path to normalised interest rates but suggest that this does not feel as imminent.”
Graham Robb, senior partner and owner of Recognition PR, was the only member to vote for an increase, albeit by 0.25 per cent, to prevent a shock to the economy when rates eventually do rise to normal levels.
He said: “It’s clear interest rates will have to rise soon, so it would be better to have a small rise now than a shock to the economy through larger rises later. We should also remember the millions of people on fixed incomes and who have saved for old age, some banks have recently reduced savings rates ahead of an expected rise, penalising savers without due cause."
Nigel Mills, chairman of the Entrepreneurs’ Forum, feels that a rise would be dangerous to the economy and would impact heavily on households.
He said: “The economy is still fragile and wage growth is still below where it should be, so a rise now would be dangerous and would affect mortgage rates that people may not be able to afford. It is still a consumer-led recovery and, while wage growth remains low, I would keep interest rates held at the current rate.”
Jane Reynolds, Tees Valley Business Manager at North East Finance, believes that, although a rise will happen, businesses aren’t currently ready for one.
She said: “Rates will eventually rise, but the general consensus is that people are not confident enough for a rise. The conversation is certainly there, but SMEs and businesses aren’t quite ready for it at this stage.”
Ajay Jagota, CEO of www.kis.co.uk, also believes that the economy isn’t ready for a rise, and would like to see an increase in household incomes before any action.
He said: “I still think that consumer spending and household debt is tentative, so a rise, at this stage, wouldn’t be welcomed. The third indicator I would look into is people’s salaries, especially in the North East. There are positive signs in the economy and we are seeing more investment, but I would like to see an increase in household incomes before interest rates rise.”
Andrew Sugden, head of external communications at Northumbria University, feels that the North East isn’t feeling the full effects of the growth in the economy and that a rise at this stage wouldn’t be suitable.
He said: “We’re still in a situation where the economy in the North-East is taking longer to recover. The big indicator is unemployment, especially youth unemployment, and we’re not seeing growth nor have the confidence to suggest a rise would be suitable.”
Michael O’Connell, owner of EOS Limited, rounded off voting in favour of a hold, as continued investment is needed for businesses to sustain growth and the low rate will encourage them to invest.
He said: “Although we’re out of recession and things are improving, there is still a long way to go. Investment is needed to continue this growth and businesses need to be encouraged to spend with rates held as low as possible, so a rise in interest rates would be counterproductive. There will be a time for a rise, but I feel it is too early at this stage.”
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