IN light of the recent GDP growth figures, which showed that the economy grew by 0.8 per cent in the first quarter of the year, business leaders in the North-East are still keen on a hold in the interest rate as the economy continues its upward trend.
The North East Shadow Monetary Policy Committee (MPC) voted unanimously in favour of keeping the interest rate held at 0.5 per cent to allow the economy to grow further and reach pre-recessionary levels. Members were also against any further quantitative easing (QE).
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.
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Heather O’Driscoll, Managing Partner at chartered accountants and business advisers Waltons Clark Whitehill, started off voting in favour of holding the current interest rate, until growth is sustained.
She said: “I think interest rates need to remain static while the economy continues to show signs of growth. This growth, as shown with the strong GDP figures in April, needs to be nurtured to ensure it is sustainable, before any changes to interest rates or quantitative easing are brought in.”
Ross Smith, director of policy at the North East Chamber of Commerce (NECC), agreed with Heather, as he feels that the economy needs some stability before a rise is considered.
He said: “We’re still seeing businesses reconsidering investments, as we are yet to reach a tipping point of commitment and confidence. First, we need economic stability before these projects come into fruition, and a rise in the interest rate at this stage, would affect this.”
Rachel Turnbull, chief executive of TT2, operators of the Tyne Tunnels, believes that the current rate allows for infrastructure projects to come into fruition, and should be capitalised on.
She said: “At present, a rise in interest rates would work against the needs of the North East and the wider UK economy, by increasing financing costs for important infrastructure projects which can really help to make the growth we are seeing sustainable. The current low rates make this a good economic environment for such projects to get off the ground and I think advantage needs to be taken of this sustained period of reduced interest levels to maximise the potential benefits of investing in infrastructure.”
Nigel Mills, chairman and board member at the Entrepreneurs’ Forum, feels that a rise wouldn’t be sensible at this point in time, as the economy isn’t as strong as it was in 2008.
He said: “The economy is slowly recovering after six years of being on its knees and is still not where it was in 2008 before the recession, so it would be less sensible to affect this with a change in the current rate.”
Catriona Lingwood, chief executive of Constructing Excellence in the North East, feels that the construction sector is beginning to pick up with growing confidence in the market and projects being developed.
She said: “Things are starting to pick up in the sector, and with new Government initiatives in the housing sector being announced for 2015, a rise now would impact this. There is a growing confidence in the market as projects have picked up and are coming through, but the economy is still lacking stability.”
Jim Willens, chief executive of Newcastle Building Society, believes that positivity in the housing and mortgage markets needs to be sustained before a rise is considered.
He said: “The improving housing and mortgage markets are good for the wider economy, as we are seeing this positivity spread across the regions. There is definite positivity in the housing market, which is working its way back to pre-recessionary levels, but this needs to be maintained and felt throughout the country.”
Jane Reynolds, Tees Valley Business Manager at North East Finance, believes that a rise is likely to happen in 2015, and feels that a hold is necessary for the time being.
She said: “Having talked to organisations such as the Federation of Small Businesses (FSB), they have seen improvements in investment and in securing funding, so a rise at this time would deter this confidence. A good foundation is needed before any change, which is likely to happen in the third quarter of next year.”
Andrew Sugden, head of external relations at Northumbria University, feels that, although the economy is turning, not all sectors are benefiting.
He said: “It is great news that the economy is turning with manufacturing playing a key role with more positive results. However, this is not being felt broadly and rising consumer confidence, which is aiding the recovery, would be affected with a rise.”
Ajay Jagota, CEO of www.kis.co.uk, believes that the economy is growing, but is wary of how much momentum it is gaining.
He said: “There is probably a time to discuss a raise, which Mark Carney, the Governor of the Bank of England, has given an indication about when certain trigger points are reached. It is fair to say that the economy is growing as we are clearly ahead of economic reports and forecasts, but my only fear is that we don’t know how strong this momentum is.”
Tony Slimmings, managing director at WR Planning Group, rounded off voting in favour of a hold, citing that the economy is still in recession.
“I am seeing nothing that would convince me to raise the current rate, as we are still in recession. Although employment figures have increased, these kinds of jobs are low-skilled and low paid, and the economy is still weak,” he said.