Interest rates on hold as UK regions face a challenging 2012

The Bank of England’s Monetary Policy Committee (MPC) has held interest rates at 0.5% and voted not to add any further quantitative easing (QE).

This morning’s decision came just hours after the European Central Bank (ECB) opted to hold eurozone interest rates at 1%.

Dr Esmond Birnie, PwC’s chief economist in Northern Ireland, says continued eurozone problems don’t auger well for some UK regional economies.

“As the eurozone’s protracted sovereign debt crisis drags on, both the MPC and European Central Bank opted for the status quo today.

“But with the Bank of England pointing to the eurozone crisis as the biggest single threat to Britain's economic recovery, the solution may lie more in the eurozone than in the UK.

“Nonetheless, UK economic performance remains worrying with industrial output down 0.6% in November and November’s  year-on-year output down a higher than expected 3.1%.

“Retail performance is mixed, manufacturing output has declined and the Engineering Employers’ Federation has downgraded its 2012 growth forecast.

“If the euro settles on to a course of decline relative to sterling that will also make export-led recovery more difficult.

“Today’s announcement of job losses in the financial sector (2,900 across RBS in the UK of which 350 are to be in the Ulster Bank in Northern Ireland) is also worrying.”

He continued:

“Even with an expected fall in the rate of inflation, UK regions reliant on manufacturing and public sector employment and with large retail centres will face a challenging year.

“Northern Ireland will not be exempt from the pain and we have already downgraded the region’s 2012 growth forecast to 0.6%.”

UK interest rates have now remained unchanged at the all time low of 0. 5% for 35 consecutive months, with the ECB’s 1% rate the lowest in the Bank’s 13-year history.

Contact details
Email: Esmond Birnie
Tel: +44 (0)28 9041 5808