Committee fears public sector cuts may be threat to recovery

The Yorkshire Shadow Monetary Policy Committee said the Government's spending cuts coupled with deferred tax rises, which come into force next year, will stretch household incomes even further.

In its first meeting since the General Election in May, the committee unanimously voted to maintain interest rates at their current level, saying that the economy was too fragile to move the rate up from 0.5 per cent.

Patrick Bowes, chief economist of regional development agency Yorkshire Forward, said at the meeting held at the Leeds offices of law firm Lee and Priestley: "We are more reliant on the public sector than figures suggest and we are not seeing a sustained recovery."

Andrew MacHutchon, of the Federation of Small Businesses, said: "It is a worry because once the cuts kick in during the latter half of this year and into next year I believe the effect will be quite severe."

Mark Stuart, a political columnist and biographer, added: "What worries me about next year is that people will have considerably less money in their pockets.

"Many of the planned tax rises will be coming in next April. What is interesting is that although it was fairly bad during the recession, people didn't stop spending, they just put it on their credit cards.

"Now we have got a public which is acutely sensitive to any interest rate rises, however small, because if they are in debt it will amount to a lot per month."

Meanwhile, some members of the committee expressed concerns that there are a number of misleading indicators suggesting that some struggling sectors are recovering.

Judith Donovan, founder of DIY Direct Marketing, based near Ripon in North Yorkshire, said: "A lot of colleagues in the construction industry, for instance, say that the Olympics has given them a

lifeline, but that won't last.

"There is an awful lot of bad news out there that is being massaged by certain circumstances that will eventually come to an end."

There was also support for further quantitative easing by the Bank of England to stimulate the economy.

Mr MacHutchon said: "I think there will be more need for further funding into the economy to counteract the impact of the public sector and possible future deflation."