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

Nov 20 2008 by Andrew Mernin, The Journal

Spencer Dale on…

The Pre-Budget Report: “I can see some advantages in some sort of fiscal stimulus at the moment. Purely for reasons of diversification as you don’t necessarily want all your eggs in one basket. We are trying to stimulate the economy and the idea that we have with fiscal policy and monetary policy which could play a role seems to be advantageous. To my mind any form if fiscal relaxation would have to be temporary and would have to be seen in some sort of framework which ensured long-term sustainability."

The current plight of small businesses: “The bank is aware that the tightening of credit conditions in terms of banks and trade credit more general - increasing day-to-days - credit insurance becoming less available and so on, can have a particularly pronounced impact on small to medium sized enterprises and it’s something we are monitoring very closely.

The minutes from the MPC meeting which were published yesterday: “One aspect of the minutes is that all nine members voted for the interest rate cuts and there are some advantages to that in that the committee has voted in a bold and decisive way is seen to be acting completely in unison with no disagreements.”

Interest rates and how low they are likely to fall: “If I knew how low they were likely to go, we would have done it already. The bank is well aware of the difficulties the economy is currently going through. We will do whatever it takes in order to ensure that inflation remains close to our target, 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."

The chances of an interest rate cut before Christmas: “If we knew that, we would have done it already. It will depend on all sorts of factors. It will depend on how financial markets continue to behave in terms of the Sterling and our reading of the economy. We are here in the North East to find out how things really are so there’s no point in coming up and speaking to businesses about what is happening if I already know how I’m going to vote in the next interest rate meeting. The point is to keep on monitoring what’s going on in the economy."

The feedback received from North East firms during his visit: "Many of the businesses we spoke to are feeling the pinch, order books are being cut back, and order books were once six months are now only six weeks. A number of the companies were talking about their difficult relationships with banks. Some businesses had pretty positive stories to tell and part of that was what we were saying earlier about manufacturing companies."

The sectors in the region which are likely to be hardest hit next year: “One sector which has already been very badly hit is the construction market. All the indications suggest the property market may remain weak and construction will remain weak for some period of time to come. The other obvious sector which could potentially be affected is the retail sector. Households incomes have been squeezed in terms of the high levels of inflation, the fall back we’ve seen in inflation, which we expect to continue, should help bring relief to that, but at the same time, as the economy continues through this very weak patch, the growth in household’s income is going to be constrained and that is likely to impact on the retail sector.”

The role local authorities can play in kick-starting the economy: “The idea that local councils can help local businesses coordinate themselves and work on projects together must be a good thing. Some of the contacts that we met with yesterday made the point that through [these type of] partnerships they’ve seen continued growth.

The outlook for the North East economy: “We do expect unemployment to rise in the North East over the coming months and quarters. By exactly how much is very hard to say and the strength of the North East may mean that it is able to withstand the slowdown better than other areas of the country."