Interest rates rise 'expected' by North East

The Bank of England yesterday voted to raise interest rates by a quarter of a percentage point to 5.5%, which takes the cost of borrowing to its highest level since 2001. The decision was greeted with notes of caution and concern by commentators in the North East.

CBI Regional Director Sarah Green said: “It is encouraging that wage increases appear to be restrained despite earlier fears. While we fully accept the need for today’s rate rise, we see no reason for a further increase at present, as the impact of the one per cent increase in rates since last August should be sufficient to keep inflation pressures into 2008 under control.”

Paul Woolston, senior partner of PricewaterhouseCoopers LLP, Newcastle, said: “It was pretty much inevitable that the increase would come this month. “Looking ahead, the impact of rising energy prices on inflationary pressure is set to diminish with most major UK suppliers making significant price cuts. The base rate is now at its highest point for six years and this may be just enough to curb inflationary pressure without compromising economic growth – a further jump too soon could prove to be a costly mistake.”

Richard Bottomley of KPMG, North East Chamber of Commerce vice-president, said: “After the Bank of England was forced to write a letter to the Chancellor last month explaining why inflation had broken 3%, this rates rise became inevitable. “NECC’s snap survey of members earlier this week showed how potentially problematic this rise could be with 77% of respondents saying the increase will threaten future investment plans and a third saying it is likely to have an impact on employment. Tweaking interest rates to keep inflation on an even keel is fine, but it is proving not to be a ‘one size fits all’ approach, and we are very concerned about the impact these increases are having on an otherwise buoyant North East economy.”

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