Bank of England announcement ‘hides a growing worry in our economy’ – Sheffield Chamber Chief

Today’s interest rate decision and inflation report announcement by the Bank of England’s Monetary Policy Committee could ‘hide a growing worry for our economy’, according to Sheffield Chamber of Commerce

Richard Wright, Sheffield Chamber’s Executive Director, said: “Today the Bank of England kept interest rates the same but downgraded its growth forecast for both this year and next year. The first reaction by many people will be relief because they do not want mortgages and loans rising in cost. The problem is that it hides a growing worry in our economy.

“I have never been an advocate that growing GDP is the thing we should aim for and if that is happening everything will be OK. For many years in business we have known that volume is for vanity but profit is for sanity. The economy can grow but we might just lose more money, the national debt rises and we store problems for the future. There is no such thing as a money tree.

“In the short term, we are seeing stagnant interest rates, rising costs and inflation which squeeze profits and wage and salary rises that do not even match inflation.

“This causes two major concerns.

“First businesses with poor productivity cannot absorb those price increases as well as those that can and the only resort is to increase prices for their goods. This means things like food on the shelves going up and we become less competitive against international competition, even when exchange rates are good.

“Second, people have less money in their pockets so buy less. Demand for products drops and at a time when businesses see profits squeezed they also see volume drop.

“There are ways out of this. We have to deliver productivity increases as an absolute minimum. As productivity rises, prices fall, competitiveness increases as does profitability and we can pay our people more.

“The down side is that an organisation might not need as many people but we have plenty of alternatives. The National Health Service is short of people, construction is short of people and many organisations in this city refer to games programmers and creative designers as gold dust. What is critical is that we have the expertise in place to retrain existing workers or to ensure the right mix of new employees are coming out of our educational system.

“We have the ability to do this in this region. It will take a re-think of the way we prioritise things, but I do think we have some good foundations in place. Any region that can get its educational system sorted, can train the right people and focus really hard on its productivity will develop a real competitive advantage.

“The point is can we do that? We tend to get diverted by prolonged arguments over things like HS2 and Devolution. If nothing else that reduces our productivity!”