North 'not lagging behind Britain' in recovery pace
THE recovery of Northern Ireland's economy is at a pace in keeping with much of Britain. That is according to Ian McCafferty, a member of Bank of England's Monetary Policy Committee (MPC), who was in the north this week to gauge the mood of the business community.
Mr McCafferty - a former chief economist with the Confederation of British Industry (CBI) - told The Irish News he "doesn't fully agree" with the notion that Northern Ireland lagged behind the rest of the UK.
He was speaking from Cookstown where he spent two days talking to firms and business representatives from in and around the town about the economic outlook.
"I would say it is clear from what I've heard that the recovery here is still in the very early stages," he said.
"It's tentative and there is still a good deal of caution and uncertainty around but having said that I think the majority of people I have spoken to have suggested that things have improved relative to six and 12 months ago and they hope that that will continue over the course of the next year
However, Mr McCafferty warned against believing headlines, which he said "focus very heavily on London and the south east (of England)".
"When I visit other parts of the UK, north-east England, Yorkshire, parts of the south-west and so on, I think they too are only in the early stages of recovery," he said.
"So I don't think it's necessarily that Northern Ireland is somehow lagging behind everyone else.
"London and the south-east are somewhat ahead of the cycle and that's been traditionally the case.
"Other parts of the UK are responding more slowly."
Information gleaned from meetings with local businesses will be fed back to the rest of the nine-strong Monetary Policy Committee.
"I get the impression that while things are only now starting and that there is some caution, things are beginning to move," Mr McCafferty said.
"There is some pick-up in the production sector, manufacturing sector contacts that we've spoken to have said that there is a pick up in orders.
"There's an expectation that corporate investment will pick up over the course of the rest of this year and into 2015."
Regarding interest rates - at a historic low of 0.5 per cent - Mr McCafferty said not to expect any significant rises for some time.
"The City of London and the financial markets expect that the first rate rise will come some time in the spring of next year," he said,
"Even once that happens, we are well aware of the particular sensitivities in the economy starting from such a low bank rate.
"We expect to see rates rise only gradually."
He said the rate of interest required to keep inflation on target, "may well be lower than the sort of rates that you expected to see prior to the crisis".
"If you go back 20 years prior to the crisis, the average bank rate was not far short of 5 per cent but we do think that the equilibrium rate may well be materially lower."
On house prices, Mr McCafferty said talk of a house-price bubble was fuelled by ballooning prices in London while the cost of a new home in other parts of Britain is rising only modestly.
"I would argue at the moment all of those indices are heavily influenced by what is going on in the centre of London, which is a luxury market, usually in which houses are traded for cash, rather than through borrowing," he said,
"I think that distorts the overall picture as it elevates the annual increase in prices relative to what is going on outside London.
"Yes we are seeing a revival but transaction levels are still below those that you would expect from a fully functioning vibrant market."
The MPC is next due to meet next week and will issue a report on inflation the next Wednesday.
* GAUGING THE MOOD: Ian McCafferty