Region’s businesses welcome rates cut
Apr 11 2008 by Karen Dent, The Journal
THE North East’s business community has welcomed the quarter-point cut in interest rates as a badly needed boost to the slowing economy.
Mervyn King, the Governor of the Bank of England, and fellow members of its Monetary Policy Committee, spent two days juggling with a raft of conflicting economic indicators before cutting rates to 5% yesterday.
The third decrease since December came in a week it emerged there had been a 2.5% monthly dip in house prices, the biggest monthly fall since the property crash of the early 1990s. With inflation running at 2.5% – above the Government’s target of 2% – and inflationary pressures mounting some commentators argued rates should have been held.
But with the IMF saying there is a one-in-four chance of global recession and illiquidity in the money markets choking business activity the Bank acted to give a shot in the arm to the economy. Richard Bottomley, North East Chamber of Commerce president, said: “In the North East the news will be particularly well received by the manufacturing sector which is facing higher energy costs and tightening of credit in financial markets. “This will enable us to maintain and stimulate economic growth in the region and keep our rate of growth above the national average and many other UK regions.”
The Confederation of British Industry welcomed the cut as positive news for businesses feeling the pressure of the credit crunch and slowing growth.
Regional director Sarah Green said: “Higher interbank and mortgage lending rates are dampening investment, consumer demand and economic activity, and the cut should ease conditions a little. The decision was a difficult one for the MPC, as inflation is expected to pick up in the coming months. However, weaker economic growth through the year ahead will help keep inflation under control over the longer term, so a reduction in rates now does not compromise the Bank’s stance on inflation.”
Manufacturing organisation EEF Northern’s director Alan Hall said: “So far the Bank’s gradual approach to cutting rates has been the right one but, given how quickly the situation is changing, there are now greater risks to business and consumer confidence. “The Bank must be ready to tear up the current script and respond if necessary with swift and decisive action.”
The Institute of Directors agreed the gradual approach to cutting rates had been “sensible” and North East chairman Bill McGawley said he expected to see further rate reductions before the end of the year.
