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Majority of Members Vote for Interest Rates to be Retained at North East Shadow MPC


There was reason for optimism from the North East Shadow Monetary Policy Committee meeting, as the majority of members voted in favour of holding interest rates as the economy picks up, with only the one supporting a rise.

North East Shadow MPC Delivers Majority Verdict to Hold Interest Rates for AugustThere was reason for optimism from the North East Shadow Monetary Policy Committee meeting, as the majority of members voted in favour of holding interest rates as the economy picks up, with only the one supporting a rise.
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.

Heather O'Driscoll, chair of the committee and Managing Partner at Waltons Clark Whitehill, agreed with Mark Carney, the Governor of the Bank of England's view that a hold in interest rates would be the right thing to do, as it would allow businesses to plan with more certainty.

She said: "In the last month, we have seen real indications of improvement in the economy, as well as having heard Mark Carney's comments as Governor of the Bank of England, that the interest rates are likely to stay the same for as long as a couple of years. That is good news because it allows businesses to plan with more certainty than has been the case for some time.

"We also saw a strong response from the markets to that news, including increases in the construction and banking markets.
Last week also saw a modest rise in GDP, which suggests we are continuing on the road to recovery."

Ross Smith, Director of Policy at the North East Chamber of Commerce, concurred on interest rates and felt that a hold was
necessary. He said: "Our most recent quarterly survey backs up the GDP estimate that growth in the region is up and is performing at its highest level since the 2008 recession.

"Although the economy is not up to the level that we were used to seeing up until the recession, there is no need for further monetary stimulus."

Catriona Lingwood, Chief Executive of Constructing Excellence in the North East, echoed Heather's words in that there should be a hold in interest rates because of the improving economy, and believes that any Quantitative Easing (QE) wouldn't have any effect at present.

She said: "We have seen an upturn in the sector in the last quarter and it's continuing to look optimistic as we are seeing projects that are now coming into fruition and things are looking healthier than before, which the latest Office for National Statistics (OSN) figures prove."

John Elliott, chairman of Ebac, was the only member to vote against a hold in the rate, as he maintains that interest rates should increase to between 3% and 5%, but argues action is needed to drive the economy into a position of real strength and balance.

He said: "Unfortunately, the Bank of England MPC and the Government are still acting more or less the same as when the financial crisis started five years ago.

"They have carried out some actions like QE and low interest rates, but these only buy time to allow us to improve the country's performance, which hasn't been done to a significant level. Reduced spending will improve the country's economic strength, but nothing has been done to improve our output and we're still consuming more than we produce, which is not sustainable, nor conducive to a healthy economy.

"We need to start making things that don't need things like skills, training and innovation, and for which we know there is demand. We need agreements with the emerging markets that our trade with them is in balance which means we need to make more and they need to consume more so that both parties win and we solve the global financial crisis."

Neil Foster, Policy and Campaigns Officer at Northern TUC, is of the assumption that any rise in the interest rates would see an increase in the number of people in the North East struggling to meet their mortgage payments, and that any quantitative easing should be directed outside of the financial services sector.

He said: "Interest rates should remain unchanged and that any increase in the short-term could have serious impact on working people with mortgages. Any growth in the economy is anaemic and appears to be benefiting London and the South. A rise in interest rates would increase the number of people in the North East struggling to make their mortgage payments and also reduce spending power in the economy.

"We would want to see any further quantitative easing be directed away from propping up bank balance sheets and directed to benefit many more businesses outside of the financial services sector. The government should be doing more to actively develop and invest in the economy to get it out of the hole we're in and ensuring growth is sustainable and materialises in all regions."

Michael O'Connell, Owner of EOS Ltd, feels that with a dramatic increase in workload since the recession period, interest rates should stay the same, with no QE as the economy "has turned a corner".

He said: "Workload has increased dramatically since the five year recession period from 2008, so with this increase, you don't want to have to pay an extortionate rate. I would like to see QE stopped because the economy has turned a corner in the last two to three months when the feel good factor has kicked in, with the 0.6% growth since the last quarter."

David Bowles, a non-executive director of NDI Ltd and Chairman of Inova Power, also called for an end to QE and agreed on the need for interest rates to be held.

He said: "There is no point in changing the interest rates at present and the days of QE are over. I think there are green shoots and to change it would create a detrimental effect and I don't think businesses would welcome a change."

Jim Willens, chief executive of Newcastle Building Society, cited the slight improvement in the housing market as reason to hold interest rates, and that any QE should be put off for the time being to see how the economy plays out.

He said: "We are continuing to see a modest improvement in the housing market and with mortgage activities, so it is a promising beginning rather than a return to normal activities. It would be sensible to hold QE and see how it plays out for an extended period of time before a stimulus is added to the economy."

Andrew Sugden, Head of External Engagement at Northumbria University, rounded up the votes by agreeing that interest rates should be held, and believes that an investment in infrastructure would be preferred to any QE.

He said: "With the North East economy at large, interest rates remain low and any change in this would be a cause for concern.

The recent GDP numbers show positive growth, but still show that it is smaller than before the crash, so we need to do what we can to return back on track and for businesses to invest."