Shadow Monetary Policy Committee in favour of interest rate freeze to help tackle unemployment

Mark Carney, the Bank of England Governor

Mark Carney, the Bank of England Governor

First published in Business News The Northern Echo: Photograph of the Author by

NORTH-EAST business leaders have backed a hold in the interest rate following positive strides from the economy, but still remain cautious about unemployment levels in the region.

The North East Shadow Monetary Policy Committee (MPC) unanimously voted 9-0 in favour of the current 0.5 per cent interest rate to allow the economy to gather momentum. Members were also supportive of the mooted lowering of Mark Carney’s target figure of 7 per cent as a trigger for a change in interest rates, but feel that unemployment in the region is still a concern.

A partnership between the North East Chamber of Commerce (NECC), Tees Valley-based accountancy firm Waltons Clark Whitehill 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.

None of the members called for any further quantitative easing, and it was a rarity that nobody opted for a raise in the interest rate.

Heather O'Driscoll, chair of the committee and Managing Partner at Waltons Clark Whitehill, was supportive of Mark Carney’s forward guidance, but still feels that unemployment in the North East is too high for any rise.

She said: “The talk at the start of the New Year has been that the Bank of England MPC’s forward guidance on employment figures, of 7 per cent unemployment being the trigger to consider a change in interest rates, may come sooner than expected and that this target may be adjusted to 6.5 per cent to allow the economy further time to continue its recovery.

“When the time comes for a change, I hope it will be based upon a holistic view of the employment situation, as the North-East is still experiencing much higher levels of unemployment than other parts of the country. We are seeing a lot of positivity among our clients and feel that this is not the time for any change in interest rates or additional quantitative easing.”

Ross Smith, director of policy at the North East Chamber of Commerce (NECC), feels that despite the NECC quarterly surveying revealing that business confidence in the North East was at a record level, unemployment is still a lingering issue and any raise would only add to the problem.

He said: “In our most recent quarterly survey, we have seen high levels of performance and business confidence in the North-East is at its highest in a decade, so this bodes well for 2014. However, unemployment is still high, especially in our region, so a raise would be too soon and would affect this confidence.

"As unemployment came down quicker than expected, so this proposed lowering of the unemployment threshold would help allay concerns, but rates in the North-East are higher than the national level and will take longer to reach the target.”

Rachel Turnbull, chief executive at TT2, feels that despite positivity, more work is required to boost the economy and a raise could have adverse effects on developing projects.

She said: “In terms of the economic recovery and infrastructure in particular, it’s much too soon to be considering changes to interest rates or any additional QE. There is a lot of work required to boost the economy via infrastructure development, raising interest rates would increase the total cost of these projects, not only stalling bid processes at a time when things need to start to move, but also creating a need for higher returns from these projects.

“I am pleased that the Bank of England is considering reducing its forward guidance target figure to 6.5 per cent because the recovery needs more time to breathe before there are any changes in stimulus.”

Nigel Mills, chairman of the Entrepreneurs’ Forum, believes that Mark Carney’s initial threshold was too high to begin with, so he would welcome a possible decrease.

He said: “Although the economy is improving, business is still a challenge with growing costs, including utilities, so I don’t think a raise is necessary and the initial 7 per cent threshold target set by Mark Carney was a bit high.”

Beth Farhat, regional secretary for the Northern TUC, concurred with Heather about unemployment in the region and a hold in the rate, arguing that too many jobs are insecure and that female unemployment has continued to rise.

She said: “The government’s failure to deliver a growth strategy based on rebalancing the economy through exports and investment, means that growth is instead coming from rising house prices and people running down their savings. While jobs growth is welcome, too many jobs are insecure and combine the three lows: low skill, low productivity and low pay.

“Female unemployment in our region actually rose by 4,000. In the same period last year there were 47,000 female job seekers – that figure now stands at 62,000 – a staggering 32 per cent increase in the last 12 months.”

She added: “These figures once again highlight the impact of indiscriminate public spending cuts. With more cuts still to come, women will continue to bear the brunt of austerity, with their jobs, services and support systems. This is a travesty in twenty-first century Britain. An unequal ‘recovery’ is no recovery at all.”

Jane Reynolds, Tees Valley Business Manager at North East Finance, echoed Beth’s view on unemployment, believing that a rise in the interest rate could affect employment in the region.

She said: “As we have seen in reports there is a steady confidence which needs to be maintained and taken hold of, so a change would jeopardise this confidence in a range of different sectors. The unemployment rate in the North East is very different to the rest of the country, so a change in the rate may add more problems.”

Graham Robb, senior partner at Recognition PR, also opted for a hold in the rate, as he believes that forward guidance should be given a chance to work.

He said: “We have experienced a great start to the year and business is buoyant, so I think that the Bank of England’s forward guidance policies should be given a chance to show that they are working, as the economy strengthens.”

Andrew Sugden, Head of External Relations at Northumbria University, feels that following George Osborne’s spending cut announcement, the North East economy faces a challenging year

He said: “Following the Chancellor’s announcements on spending cuts, this suggests that the North East economy could be turbulent in terms of consumer spending this year, so although the economy is growing, a hold will help ease this pressure.” 

Jim Willens, chief executive of Newcastle Building Society, rounded off proceedings by adding another vote to a hold in the interest rate as the economy looks to gain additional ground.

He said: “The economic outlook is now more promising for both consumers and in various industries, including the housing market which is improving and gaining momentum. However, there is still additional ground to be made up in terms of cost of living, so momentum needs to gather before a raise is considered.

"If the progress is such that 7 per cent is reached, it wouldn’t be unreasonable to adjust this, but the decision should not just be determined by one single factor.”

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