No change at the Bank of England as local business failures soar.Follow @PwC_NI
The Bank of England’s monetary policy committee (MPC) held interest rates at their record low of 0.5% and voted against increasing its £325bn programme of quantitative easing (QE).
The MPC decision came despite fears for the UK’s fragile economy after last week’s provisional data saw the economy return to recession, its first double-dip downturn since the 1970s.
Today’s decision came just days after it was revealed that Northern Ireland business failures in the first three months if 2012 were 18% up on the same period in 2011 and 44% up on the last quarter in 2011.
PwC’s chief economist in Northern Ireland, Esmond Birnie, says:
“The MPC faced some tough choices; the protracted eurozone crisis and the strength of sterling are impacting exports, manufacturing recovery and job creation; while consumer price inflation actually rose on April to 3.5% - well above the 2% target.
“And with business failures still on the increase, particularly in the retail sector, the committee clearly felt that further QE might stimulate inflation more than it would stimulate growth.
“A further complication for the MPC has been the outcome of the Greek and French elections and the bail out of Bankia in Spain, which conspired to make sterling particularly attractive.
“As sterling appreciates against the euro it will help contain domestic inflation but it also seriously dampens scope for an export-led recovery.
“Our last forecast suggested that Northern Ireland is expected to grow by a mere 0.2% in 2012 and nothing we have heard in recent days serves to change that assessment.”
The most recent insolvency figures also show that 111 businesses collapsed in the first three months of 2012, as compared to 94 in the same period in 2011.
However, that 18% increase compares to a 2% increase in England and Wales and when compared to the last three months of 2011, the difference is even starker.
There was a 44% increase in Northern Ireland business failures between Q4 of 2011 and the first three months of 2012; as compared to an 8% increase in England and Wales.
Esmond Birnie says:
“It is difficult to forecast any significant short-term improvement or economic recovery in Northern Ireland and some of the other UK regions.
“There are certainly individual good news stories of export wins, investment proposals and new jobs and they are particularly welcome; but the overall prognosis for regional economic recovery remains very challenging.”
Email: Esmond Birnie
Tel: +44 (0)28 9041 5808