Confidence grows among regional company chiefs

Dr Andrew Sentance was speaking after spending two days visiting businesses in Harrogate, Leeds and York as part of a fact-finding tour.

Dr Sentance, who is one of the MPC's nine members, told the Yorkshire Post that he detected an improvement in mood among Yorkshire's business community.

He said: "There's been a big turnaround over the last year. This time last year the economy was moving very deeply into recession and people were very nervous about what was going to happen next. Over the course of 2009 most people have seen their businesses stabilise, to some

extent. Some people have begun to see improvement in orders and activity. That's at a very early stage and it's still not across the board.

"What has very noticeably improved is business confidence. Businesses are more positive about the outlook but cautiously so. They expect to see some improvement through this year but they are not yet sure exactly how significant that will be."

Mr Sentance said the manufacturing sector had suffered during the recession, with some manufacturing firms seeing volume declines of 20 to 30 per cent.

But, as de-stocking comes to an end, some manufacturers were beginning to recover.

He added: "Certainly manufacturers had to make big adjustments and probably had to make a quicker adjustment on the employment side than in some services industries."

Mr Sentance acknowledged that construction and property had felt the strain during the recession.

He added: "That may be longer term because they are quite dependent upon the banking system and financial system and the financial system has been very concerned about risks in that area."

Businesses across Yorkshire were talking about similar topics, he added.

He added: "First of all they are reporting that things have stabilised and maybe begun to improve.

"Secondly, there's concern about two potential headwinds to the recovery. One is the financial sector, and what's happening in the banking system, the second is the re-balancing in the public sector.

"Businesses recognise that the Government needs to get its deficit down, but they also see that that may constrain certain areas of public spending and they may need to adjust to that."

The minutes of the January meeting of the MPC, which were published on Wednesday, revealed that all nine members voted to keep interest rates at a record low of 0.5 per cent and to maintain the 200bn quantitative easing scheme to help economic growth.

Earlier this week, it was revealed that the Consumer Price Index (CPI) measure of inflation had risen to 2.9 per cent in December, up from an annual rate of 1.9 per cent in November.

Commenting on the near-term outlook for inflation, Mr Sentance said: "We've seen a lot of volatility in inflation. We've seen that in the latest figures. It's being driven by changes in VAT and also by the volatility of oil and commodity prices.

"The volatility on the global side from oil and commodity prices is something that we may have to live with for some time. The key thing on inflation is that people continue to have confidence in the medium-term view that inflation will be low and stable at around about the two per cent rate once we get through the various fluctuations.

"There is quite a bit of evidence that that confidence is still there, so it's important that we try and look through some of the fluctuations and the short-term factors affecting inflation.

"I certainly think quantitative easing has been helpful in terms of stabilising the economy and improving confidence in the financial sector. It's early days to see the full impact of quantitative easing, but certainly, the fact that the economy has stabilised and has begun to grow again is a positive signal about the policy of quantitative easing."

Listen to the interview online at yorkshirepost.co.uk.

Economist and professor

Dr Andrew Sentance has been an external member of the Monetary Policy Committee of the Bank of England since 2006.

The Monetary Policy Committee is responsible for setting interest rates in the UK to meet the Government's inflation target.

He is also a part-time Professor of Sustainable Business at the University of Warwick, based at Warwick Business School, and a member of the Commission for Integrated Transport, which provides advice to the Government on transport policy issues.

Before joining the Bank of England, Mr Sentance was chief economist and head of environmental affairs at British Airways.

He was educated at Eltham College, Cambridge University (Clare College) and the London School of Economics, where he gained his PhD.