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North East Shadow MPC Delivers Majority Verdict to Hold Interest Rates for August

 

The North East Shadow Monetary Policy Committee (MPC) has delivered a majority decision to maintain the current rate of interest, ahead of the Bank of England's own MPC announcement on Thursday.

North East Shadow MPC Delivers Majority Verdict to Hold Interest Rates for AugustThe North East Shadow Monetary Policy Committee (MPC) has delivered a majority decision to maintain the current rate of interest, ahead of the Bank of England's own MPC announcement on Thursday.

A partnership between the North East Chamber of Commerce, the Institute of Chartered Accountants England and Wales (ICAEW) 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 lack of growth and confidence in the economy at present, and no sign of imminent recovery, has led to a general consensus among members that interest rates should be held at their current level to help facilitate growth in UK markets.

However, two members, Ebac Chairman, John Elliott, and the TUC's, Neil Foster, offer a different perspective to the discussion and members' thoughts are divided on the need for further Quantitative Easing (QE).

Neil Foster, Policy and Campaigns Officer of the Trades Union Congress (TUC), believes there should be a shift in the rates. He said:

"I think interest rates should be cut by 0.25%. An interest rate cut, however helpful, will in itself be insufficient to stimulate sufficient demand for economic recovery. The recent increase in the number of retailers going into administration is a sign that this is a demand crisis. The 5% decline in construction is a further sign that the government's austerity measures are sucking out demand from across all sectors of the economy."

Neil added:

"There is limited evidence that QE is working as well as was envisaged. Alternative methods and models of injecting finance into the economy should be considered. These include green quantitative easing ensuring the financing of the renewable energy and energy efficiency markets and a national investment bank for SMEs."

Keith Proudfoot, Northern Regional Director, Institute of Chartered Accountants England and Wales, led the majority decision to call for a hold. He said:

"Interest rates should be held. There has been talk about a drop in the rates to a quarter or zero, but there is no merit in this. There should be no further QE in the big company bonds, which has been done before, but an increase in the total amount that is made available to SME's and I would like to see this process sped up as we are yet to see results."

Ross Smith, Policy Director of the North East Chamber of Commerce, agrees. He commented:

"It is positive to see inflation rates coming down significantly, but these are still above the bank's target rate and growth in the economy is still struggling. I believe there should be no further QE this month following the extra announcement of QE last month. The GDP statistics released last week were for quarter two, so the £50bn injection in July followed the figures. Consequently, we need to allow time for this to bed in to see whether we need further QE."

David Coates, Managing Director of Newsquest North East, said:

"Interest rates should be maintained at their current level. There is no sign of recovery and rates must remain low as a consequence. Advertising revenues are still flat but the Jubilee, European Football Championships and the Olympics have stimulated some growth in some sectors. Digital advertising is up significantly but core ad-revenues remain flat. I believe there should be further QE, as the economy is still in recession, we need every stimulus we can get!"

Anne Elliott, Partner at Latimer Hinks Solicitors, said:

"Interest rates should be held. Residential property in the lower and top sectors is not bad, but the middle sector is stagnant and commercial property transactions are slow. Furthermore, banks are still very cautious re lending and clients are reluctant to undertake long term planning and incurring legal costs as their major concern is reducing and restricting their expenditure given poor interest rates on savings and the rising cost of living. I do not believe QE is the answer."

Disagreeing with the majority, John Elliott, chairman of Ebac Group Ltd, believes there should be a shift in the rates. He said:

"I would like to see a rise in interest rates. Somewhere around 3% or 4% is a reasonable rate for both lenders and borrowers. I wouldn't rule out QE because having more money in circulation can help to devalue the debt we have."