THE North East Shadow Monetary Policy Committee (MPC) has begun the new year with mixed views on the current interest rate ahead of the Bank of England’s own MPC announcement on Thursday.
A partnership between chartered accountants and business advisers Waltons Clark Whitehill, the North East Chamber of Commerce (NECC) 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.
The majority of the committee voted in favour of no change to interest rates. However, two members disagreed and offered a different perspective on the issue.
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Tony Slimmings, Director at WR Financial Limited, believes that: “Rates should be put down to 0 per cent, although only a token move it will show the bank is serious about getting the economy moving again.
“After a resilient year, business confidence in the SME area is ebbing as growth prospects are pushed further back and the impact of new pension contribution burdens start looming, employers will start finally shedding staff.”
He added: “There should be no further quantitative easing as putting more money on bank balance sheets will not get the economy moving. That money should be given as employer relief from National Insurance for a period to prevent the expected rise in employment mentioned above.”
However, Michael O’Connell, Director of EOS, said: “The base rates need to move up, initially by 0.25 per cent. Business activity in our manufacturing sector is increasing and if we don’t start increasing interest rates and capping quantitative easing we will see inflation start to increase quite steeply in 2013 which won’t be good for business or the consumer.”
Waltons Clark Whitehill, which is based in Hartlepool, has joined the partnership as they Shadow MPC’s key sponsor for 2013.
Heather O’Driscoll, Managing Partner at Waltons Clark Whitehill called for a hold in the rate of interest, as well as no additional quantitative easing.
She said: “I think it’s going to be a tough year. Many businesses we deal with have made it this far by owners injecting their own money, and they are getting work in, but banks are not funding the working capital requirements needed to take it a step further. The difficulty when working capital is available is that it is rarely at affordable rates and there is a question of what is required as security.
“All of this adds to the lack of confidence to borrow, not only because of the uncertainties in our own economy, but because of those abroad, such as the fiscal cliff policy debates in the US.”
She added: “Quantitative easing is clearly not working, because it hasn’t reached the smaller businesses who need it.”
Ross Smith, Policy Director for the North East Chamber of Commerce, said: “Despite the current situation, businesses in the North East are working hard and in relatively good health. We are seeing an increase in the amount of businesses willing to invest, but this could be halted if the rates increase. Funding for Lending that was brought in last year has had a positive effect, but we need to give it more time in order to make an impact.”
David Coates, Managing Director of Newsquest North East, said: “Rates should stay the same as there is still insufficient evidence of recovery underway. Revenues are struggling to break into growth. But there is evidence of some improvement in some aspects of our business; recruitment revenues are looking a little better, for example. It’s too early to tell whether this is a sustainable improvement, but it is encouraging.
“There should probably be no further QE because of the risk to inflation.”
Peter Batty, Chief Executive of Norchem Group, commented: “I believe the current rate should stay the same. The general cost constraints and pressures on businesses at the moment would only increase if the rate changed.”
Anne Elliott, Partner at Latimer Hinks Solicitors, in Darlington, said: “Interest rates should stay the same. The little optimism there is in the market needs to be maintained and nurtured and it would undoubtedly be affected by a rate change. I am not in favour of further QE.”
Kevin Rowan, Regional Secretary of the Trades Union Congress (TUC), wants “no change to interest rates at this point in time”.
He said: “There’s very little change in the economy at the moment, there’s some sign of confidence improving in parts of the private sector, but little overall economic improvement. The public sector faces a further very tough year. I’m not convinced that further QE will make any difference, so would not support further moves in this area at this time.”
Graham Robb, Senior Partner at Darlington-based Recognition PR commented: “This is the year I expect interest rates will rise, but hopefully not in the first quarter, because I believe we are not quite ready for it to happen.”
Nigel Mills, Chairman of the Entrepreneurs Forum in the North East and Managing Director of property investors Closewalk Ltd, said: “The base rate should be held as it is a key economic stimulus at present; trade in my businesses is up in terms of sales. However gross profit is down due to cost pressures on raw materials and consumables. Hence bottom line profit is slightly down.
“There should be no more QE as there is enough liquidity in the banking system, just reluctance on behalf of business to invest and borrow due to uncertainty and a lack of confidence.”
Jim Willens, Chief Executive of Newcastle Building Society, said: “I vote for no change to interest rates, as mortgage demand and housing transactions both remain subdued. With regards to Quantitative Easing I believe there should be no further QE at this point in time as there is little evidence to suggest this would help at this stage.”
David Bowles, Chairman of Inova Power Ltd and Non-Executive Director of NDI Ltd, said: “Rates should stay unchanged. The engineering sector is generally facing an uncertain future although some segments are doing well as reported last time. There should be no more QE, because of its devaluing effect.”
Andrew Sugden, Head of External Engagement at Northumbria University, said: “Interest rates should remain the same. The economic recovery remains slow, with business and consumer spending growing only very modestly. That said, recent announcements such as the investments at Nissan and the reaffirmation of the North East as a beacon of exporting strength underline that we should be optimistic about the future.
“In addition, there should be no further QE in addition to previous rounds of QE. The Bank of England has introduced its Funding for Lending programme which is a medium- to long-term initiative to stimulate growth which needs to be given a chance.”
Keith Proudfoot, Northern Regional Director, Institute of Chartered Accountants England and Wales, said: “Rates should stay the same. The economy remains lacking in confidence and an adverse change to interest rates, however small, would risk negativity and deepen the recession. QE should stay unchanged.
"The QE programme has, sadly, simply left many large organisations with liquid balance sheets without that liquidity finding its way into the economy as intended. I would welcome some positive news that the Funding for Lending (FfL) initiative is working as it should. That mortgage lending satisfies the Banks’ criteria is a personal disappointment – I would have preferred pure business lending to be the measure in respect of FfL.”