The business verdict ahead of crunch interest-rate decision

Stick or twist? To raise or not to raise? It is a decision that will have profound effects for the economy and households – should the Bank of England raise interest rates from their historic, and long-standing low, of 0.5 per cent to counter the sharp inflationary increase in the cost of living?Ahead of tomorrow’s decision, members of the Yorkshire Shadow Monetary Policy Committee offer their perspective on whether a rate rise would be beneficial or detrimental to the region’s prospects.

Jonathan Oxley

Chairman of the Yorkshire Shadow MPC and senior partner at Lee & Priestley.

“The recovery may still be too patchy to risk raising interest rates. The inflation in the system is largely from commodity prices and higher taxes. The impact of public-sector cuts is only beginning to be felt.

Hide Ad
Hide Ad

“This month, we need to hold our nerve and maintain interest rates at the current level. However, if the signs of recovery in the private sector are sustained through March and April, I would be looking to move rates up in May.”

Bill Adams

TUC regional secretary for Yorkshire and Humber.

“The TUC view is that there should be no rise in the interest rate at the present time as this will only exacerbate the hardship faced by many workers, particularly public servants, suffering a pay freeze. This squeeze on incomes may also mean that consumer spending will fall and hit output at a time of fragile growth.

“A rise would make many day-to-day essentials more expensive. For people on fixed incomes, such as pensioners, they will notice it even more. As many workers are suffering a real squeeze on their livelihoods, a reduction in consumer spend could cost jobs, harm firms and undermine growth.”

Judith Donovan

She heads DIY Direct Marketing.

“I WOULD vote for an increase in interest rates of one-quarter to one-half per cent because I fully appreciate that most of it is ‘imported’; oil, foodstuffs etc, but, nevertheless, inflation is starting to feel like the bogey man, the elephant in the corner etc, and a rate rise would be the right gesture; perception is reality.

Hide Ad
Hide Ad

“It would also go a little way to helping the army of pensioners who have had it very tough on incomes, and they are not a little army.

Andrew MacHutchon

Treasurer of the area policy unit at the Federation of Small Businesses.

“The recent economic stats and international pressures brought about by the weakness of sterling, accelerating oil and commodity prices, coupled with the Government’s increases in taxation versus a slowing down in economic growth, rising unemployment and declining consumer spend, are a contradiction of inflationary fears on the domestic front.

“CPI inflation, excluding indirect taxation and commodity prices, is currently running at two per cent in line with Bank of England targets. A rise in bank rate at this point would accelerate a further slowdown in economic growth, resulting in further business failures, repossessions and unemployment.”

Kevin O’Connor

A partner at Baker Tilly Corporate Finance LLP.

Hide Ad
Hide Ad

“I WOULD vote for holding rates. I believe it is clear that the main drivers for inflation at the moment are cost pressures, particularly as a result of commodity price increases, tax rises and the weakness of the pound. It is not demand-led inflation.

“As a result, I doubt whether an increase in rates would have the desired effect of reducing inflation. Rates would have to increase substantially, and this would put the recovery at serious risk.”

Andrew Palmer

CBI regional director

“Recent indicators have pointed to a rebound in economic activity at the start of the year, suggesting that the recovery is continuing following the weather-related disruption in the fourth quarter of 2010.

“Meanwhile, more MPC members are showing concern about inflationary pressures.

Hide Ad
Hide Ad

“In the months ahead, a critical issue for the Bank will be the extent to which second-round effects become evident within pay settlements.

“We expect the Bank to begin the process of normalising its stance in the second quarter of this year, gradually withdrawing some of the monetary stimulus to minimise the risk of sustained above-target inflation.”

Joanne Pollard

Chief executive of CO2Sense.

“It’s a tough call. With inflation at four per cent and rising, the Bank will be under pressure to raise interest rates to bring inflation under control.

“But most of the reasons for this inflation are temporary, such as the rise in VAT and the rise in commodity prices caused by, for example, weak harvests in Russia. With unemployment still high, it’s unlikely that this inflation will result in higher wage demands.

Hide Ad
Hide Ad

“What Yorkshire businesses need right now is stability. With the economy shrinking, a weak pound is vital for export growth. So I would vote for interest rates to remain at 0.5 per cent.”

Mark Stuart

A York-based political historian.

“The ability of the Bank of England to control inflation through higher interest rates is virtually nil at the moment, because the main cause is high world commodity prices, about which we can do nothing. 

“Any rise in rates could have a disastrous effect on a very fragile economy, so I would vote to keep rates unchanged, at least until the second half of next year.”

Margaret Wood

Regional chairman of the Institute of Directors.

“The rising inflation figure is not because of rampant consumerism, it is caused by speculators and by VAT rises. The speculators’ leverage is being financed by low interest rates.

Hide Ad
Hide Ad

“Keep rates low, expect more speculation pushing prices up further. The MPC needs to remain steady and hold its nerve, but a small rate rise will send a shot across the speculators’ bows. It’s also time to reward people for saving money and start to encourage them to save. We need to put money back into people’s pockets.”