North 'well-placed to ride out worst effects of the downturn'

Nov 20 2008 by Andrew Mernin, The Journal

THE strength of North East manufacturers could save the region from the worst of the economic downturn next year, according to the Bank of England’s chief economist.

The Bank’s Spencer Dale made a visit to the region yesterday to gauge the impact of tough economic conditions on North East businesses and revealed that the Monetary Policy Committee (MPC), of which he is a member, would continue cutting interest rates to keep inflation close to their target.

His visit came as it emerged that rate-setters will weigh up tax and spending plans due in next week’s Pre-Budget Report before deciding how far and fast to slash rates.

The Bank of England voted unanimously to slash rates by 1.5% to a 53-year low of 3% two weeks ago, but minutes of the meeting – which were released yesterday – signalled more to come.

The minutes suggested cuts of 2% or more were needed to hit inflation targets, although it would reassess the required scale of monetary easing after the Pre-Budget Report.

Interest rates are on the way down as recession fears replace inflation concerns on the Monetary Policy Committee (MPC) but experts said the pace of the cuts would depend on the extent of the fiscal stimulus provided by Alistair Darling.

Meanwhile, speaking exclusively to The Journal, Mr Dale said the North East would be better equipped than many other parts of the country to fight off the threat of recession next year.

He said the key to the North East navigating through the economic storm could be the strength of its manufacturers, who have been lifted by the weakening pound.

He said: “There are reasons why the North East should be well-equipped to withstand this downturn better than most other regions.

“A key aspect is the importance of manufacturing to this area. Sterling has fallen by around 15% in the past year and that should help to support exports – so the dependence of this region for manufacturing and exports should mean it will be able to withstand the shots better than in many other areas.

“The economy is clearly going through a downturn and that will clearly affect the North East as well, but its ability to withstand the downturn more than other regions should be helped by the value of Sterling and the support that should give to manufacturers.”

The chief economist, who spoke to representatives from over 100 North East businesses yesterday, also said he had received some positive feedback from regional companies, despite the gloomy market conditions.

He refused to be drawn on whether there was likely to be another interest rate cut before Christmas, but said: “We will do whatever to ensure that inflation remains close to our target, thereby returning the economy to a position where its normal growth can resume.

“If that means cutting interest rates further, we’ll cut interest rates further.”

PAGE TWO: More from The Journal's interview with Spencer Dale.