North East Shadow Monetary Policy Committee votes to hold interest rates

The MPC is a partnership between The Northern Echo, the North East Chamber of Commerce (NECC) and Darlington Building Society, which considers the state of 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.

Following a survey of 759 businesses from a range of sectors including manufacturing, retailing and services, the CBI discovered just six per cent of respondents had experienced growth in the three months up to January, the lowest since May 2013.

The news from the CBI follows the publication last week of official results showing that the UK’s GDP grew by 0.5 per cent in the last quarter of 2015, the slowest for three years.

Chairman of the committee and finance director at Darlington Building Society, Christopher White, voted in favour of maintaining the current rate.

He said: “Growth figures for the UK in 2016 are expected to be lower than previously forecast and there remains uncertainty over a potential Brexit.

"Globally growth remains very weak and there is significant financial market volatility creating an uncertain economic and business environment moving into 2016.

“All of this points to the fact it is too early for any increase in bank base rate or any changes to the current QE position.

"The UK, however, remains one of the fastest growing developed economies and a bank base rate increase towards the end of 2016 is more likely.”

Catriona Lingwood, chief executive of Constructing Excellence in the North East, believes that although the construction sector is picking up there are still issues facing the sector that an increase in interest rates could exasperate.

She said: “The wettest December on record has worsened a slowdown in new construction.

"The value of starts was down 14 per cent on a year earlier during the final quarter of 2015.

“Waterlogged sites, coupled with the evident lack of confidence among construction clients, are expected to hold back starts during the first quarter of this year.

"However, activity is expected to pick up through 2016 with a rise in project starts predicted to be led by the commercial and private housing sectors.”

Hirohito Imakoji, managing director at Liebherr-Sunderland Works Ltd, believes a hold would support the foreign exchange and exporters.

He said: “The way the pound is going at the moment is feasible for exporters, and a change in the interest rate would only affect the foreign exchange.

"I can see what has happened in the US, but the recovery is not yet in a position that we would have hoped for by now, so it would be wise to hold rates.”

Ross Smith, NECC policy director, agreed with Hirohito, adding: “Low inflation has encouraged export from British businesses and an increase in the value of the pound could add unnecessary pressure on the North-East economy.”

Jane Reynolds, Tees Valley business manager for North-East Finance, believes the rate should remain as it is, citing a lack of confidence from the Bank of England.

She said: “Previously the Bank of England predicted a rise in interest rates, but later backpedalled and opted to maintain the rate as it was.

“Although GDP figures released in January did show that the pace of economic growth increased during the last quarter of 2015, as a whole for the year, it was still down 0.7 per cent compared to 2014. For now we need to keep the stability that the low rate brings.”

The need for stability was echoed by Anne Elliott, Latimer Hinks solicitors’ chief executive who warned positive figures coming from the housing industry may be misleading as buyers rush to beat the increase on stamp duty on buy-to-let properties in April.

Graham Robb, senior partner at Recognition Marketing and PR, believes the Bank of England has missed the window to raise interest rates.

He explained: “If the raise had come earlier it would have sent out the signal the economy was strong enough to handle the pressure.

"Currently market sentiment and confidence suggests that there isn’t an opportunity, so I am reluctantly voting to hold rates.”

Jonathan Willett, a director at Henderson Insurance Brokers Teesside office, said: “The latest economic data paints a very mixed picture across different UK business sectors.

"While GDP grew overall by 0.5 per cent this was service sector driven with manufacturing remaining static.

"Until there is more of an economic balance and less volatility in overseas markets, I believe that interest rates should be kept at their current level.”

Richard Hogg, managing director of Jackson Hogg Recruitment, also said rates need to stay low to support the manufacturing sector in the North-East.

He said: “The GDP figures for the last quarter of 2015, released last week, showed strong growth in many sectors, but not in manufacturing.

"For this reason, and given the uncertain demand in developing markets, I’d hold rates to give the North-East’s manufacturers some degree of stability.”

Nigel Mills, chairman of the Entrepreneurs Forum, said: “We should keep rates on hold as wage growth is still low and inflation is currently below the two per cent target” adding “the economy is growing, but is not growing ahead of long-term trend and as a result inflation is, at present, in a neutral position.”

Mark Marsh, finance director at Seaward Group, doesn’t see any reason for a rise, but expects a wage inflation in the economy with the introduction of a national living wage.

He said: “There is no necessity for a rise until we see there is clear traction in the world economy and the US' decision to raise their base rate is irrelevant to the UK.

"The upcoming increase in wages will almost certainly have an impact on the economy, with some people set to see their pay rise by as much as 7.5 per cent, which will push up salaries and could also drive the retail aspect of the economy.”

David Coates, managing director of Newsquest North, the publisher of The Northern Echo, was not in favour of raising rates, citing the reoccurrence of lower confidence in the financial markets due to volatility, adding: “Although further quantitative easing is not appropriate at the moment, I think it’s back on the table for consideration.

"Any further jitters spanning from weaker than expected growth in China could seriously undermine confidence and markets might need further support in the form of QE.”

Ajay Jagota, chief executive of KIS Group, echoed Mr Coates’ misgivings, citing the slowdown of China’s economy as the reasoning behind is vote to maintain the current rate.

Beth Farhat, regional secretary for the Northern TUC, added: “The Bank should keep rates on hold and recognise the ongoing risks to our weak economic recovery.

"Given the Chancellor's plans for severe spending cuts, putting interest rates up too soon would hit growth hard, choking off recent gains in employment and earnings for working-age people”