THERE is a real sense of optimism in North-East business circles. After too many years in the doldrums, the region is making significant economic progress and it is vital that the momentum is maintained.

There is, of course, still a long way to go if we are to close the gap with other regions and today's survey by the North-East Chamber of Commerce makes uncomfortable reading.

It shows that a third of North-East firms fear they will have to lay off staff if interest rates continue to rise, with the vast majority believing that sales will be hit and prices pushed up to compensate.

The Bank of England's rate-setting body, the Monetary Policy Committee, meets on Thursday and is widely expected to endorse a rate rise of 0.25 per cent.

It is the day on which Tony Blair is expected to formally announce his timetable for leaving Downing Street after ten years in which strong management of the economy has been a hallmark.

Despite that proud record, last week's key report on the Blair years by North-East academic Fred Robinson concluded that he had presided over a widening of the North-South divide during his time in office.

That conclusion will be underlined if interest rates go up again on the day the Prime Minister quits - because it will be further evidence that the North-East is having to pay the price for over-heating in the South.

The Government must look at a more sophisticated approach, such as regional differentials on stamp duty and development tax, if the divide is to be addressed and the North-East's momentum maintained.